Jazztel Shares Climb After Chairman Predicts Consolidation Ahead

Jazztel Plc (JAZ), Spain’s smallest publicly-traded telephone company, rose the most in two weeks after Chairman Leopoldo Fernandez Pujals said the Spanish telecommunications market is headed for consolidation.

“Big fish will buy those smaller players that are biting them all the time,” Fernandez Pujals told reporters in Madrid today. “I don’t know when that is going to happen but there’s just no way around that.”

Jazztel shares climbed as much as 2.2 percent and gained 1.9 percent at 5:07 p.m. in Madrid, reversing an earlier decline of as much as 1.2 percent.

The company predicted today profit will increase more than threefold over the next five years as it continues to lure customers from rivals such as Telefonica SA (TEF) and Vodafone Group Plc (VOD) while it gains mobile-phone customers from its existing broadband users. Net income will reach as much as 220 million euros ($285 million) in 2017 compared with 62 million euros last year, the Madrid-based company said today in a statement.

Jazztel expects revenue to reach as much as 1.6 billion euros over the same period from 909 million euros and targets as many as 2 million broadband customers in 2017 compared with 1.32 million at the end of last year. It is also seeking to reach as many as 2.5 million mobile-phone customers compared with 343,000 in 2012.

Exceed Goals

Fernandez Pujals said the company can exceed business-plan goals. They “are just a minimum -- we have been very conservative,” he said.

Jazztel, which has gained market share from Telefonica in the last few years, is betting on growth driven by consumers who switch to cheaper bundled offerings that package voice, high- speed Internet and mobile data. The company is “well positioned” to tap opportunities from packages as it has the right infrastructure, Chief Executive Officer Jose Miguel Garcia told reporters at the same event today.

“This business plan is a bit too agressive and it will be difficult for the company to actually achieve it,” said Francisco Salvador, a Madrid-based strategist at FGA/MG Valores. “An acceleration of growth could trigger profit margin pressure in a market that seems to be slowing down.”

’Very Optimistic’

Telefonica, Vodafone and France Telecom SA (FTE)’s Orange Spain are also offering integrated services as they aim to be more competitive, which will make it more difficult for Jazztel to continue delivering strong growth, according to Salvador.

Jazztel shares fell yesterday by the most in two months after Vodafone and Orange Spain announced plans to invest in fiber to homes in Spain. In October, Jazztel reached an agreement with Telefonica to jointly deploy fiber-to-the-home network.

“This plan provides a very optimistic sales outlook as the company seeks to gain customers agressively,” said Andres Bolumburu, an analyst at Banco de Sabadell in Madrid who recommends buying the stock. “Even if the shares drop today, they should continue to climb as they have in the past couple of years.”

No Dividends

The company doesn’t plan to pay dividends in the next five years as it focuses on growth, Fernandez Pujals said.

“Those that pay dividends either lack creativity or dynamism to invest with a 20 to 40 percent return,” he said. “Jazztel investors won’t complain over the next five years if we don’t pay a dividend.”

Jazztel has 18 buy, four hold and 3 sell recommendations with an average 12-month price target of 6.51 euros, from analysts surveyed by Bloomberg.

“I would like to remain as an investor in Jazztel as long as possible because I only see growth ahead of us,” Fernandez Pujals said.

To contact the reporter on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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