TDC Shares Drop as Regulation Seen Squeezing Sales, Profit

TDC A/S (TDC), Denmark’s biggest phone company, fell the most in more than four years in Copenhagen trading on concern that regulation will squeeze revenue and profit.

TDC is struggling with declining revenue amid tough competition in the Nordic mobile-phone market. The company, which today maintained its full-year revenue and profit forecast, said tougher regulation on roaming and broadband wholesale prices will increasingly hurt sales and earnings from next year.

TDC plunged as much as 8.5 percent, the most since May 21, 2010. The stock declined 8.4 percent to 51.60 kroner at 3:52 p.m. in the Danish capital, where the company is based, with trading volume more than double the three-month daily average.

“There are indications that 2015 and 2016 forecasts are likely to see negative revisions from various regulatory initiatives,” Jesper Herholt Jensen, an analyst at Nordea Bank AB in Copenhagen, said in a note to clients. He repeated a hold recommendation on the stock.

TDC said the termination of retail roaming charges within the European Union by the end of 2015 will hurt annual revenue by as much as 300 million kroner ($54 million). TDC’s gross profit will suffer by as much as 150 million kroner from tougher regulation this year, rising to as much as 175 million kroner in 2015 and 250 million kroner the year after, the company said.

Weak Trends

TDC reported second-quarter earnings before interest, taxes, depreciation and amortization of 2.35 billion kroner, missing the average estimate of 2.39 billion kroner in a Bloomberg survey of analysts. Sales fell 5.5 percent to 5.67 billion kroner, trailing the average estimate of 5.76 billion kroner.

“The second-quarter report confirms continued challenging market fundamentals across most divisions,” Jensen said. “While revenue trends remain weak, Ebitda and cash flow are on track to meet full-year guidance.”

TDC said it still anticipates 2014 Ebitda of more than 9.6 billion kroner.

The company has also lost some of its large public contracts in Denmark, which will hurt its revenue further, Morten Imsgard, an analyst at Sydbank A/S, said in a note, repeating a hold recommendation on the stock.

‘Big Challenges’

“TDC faces big challenges to protect profits against declining sales in 2015,” said Imsgard, who is based in Aabenraa, Denmark. “It’s essential that TDC secures a significantly better organic growth rate in 2015 if the company should be able to uphold its high dividend payments in coming years.”

Before today, TDC shares had gained 7.1 percent this year, compared with a 2.4 percent decline in the STOXX 600 Telecommunications Index.

“The share price has performed well this year driven by the prospects of mobile market consolidation,” Nordea’s Jensen said. “At the current level, we believe the share price is already partly discounting the benefits of a consolidated mobile market leaving limited near-term upside if this scenario does not materialize.”

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brogger at tbrogger@bloomberg.net Kim McLaughlin, David Risser

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