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Drillisch Gains as Berenberg Sees More Profitability

Drillisch AG, a German provider of telephone services, rose by the most in a year after analysts at Berenberg Bank said a shift toward selling mobile services itself will prove more profitable that initially estimated.

Drillisch jumped as much as 7.2 percent, its biggest intraday gain since Aug. 1, 2012. The stock traded 6.3 percent higher at 15.125 euros at 12:10 p.m. in Frankfurt, valuing the company at 803 million euros ($1.07 billion). Volume traded was almost three times the three-month daily average.

Drillisch, based in Maintal, Germany, has changed its business model to become a mobile virtual network provider. The company rents the wireless network infrastructure in Germany of Telefonica SA and Vodafone Plc and provides mobile services, such as Simplytel or Maxxim, itself. Drillisch said on Aug. 9 that earnings before interest, tax, depreciation and amortization should rise to 77 million euros and 80 million euros in 2014.

“We were materially underestimating the profitability of the MVNO business model,” Usman Ghazi and Laura Janssens, London-based analysts at Berenberg wrote in a note today, upgrading the company to buy from hold.

The analysts estimate that Drillisch “beats the top end of its own 2014 guidance by 11 percent.” The company will “nearly” double Ebitda by 2015 from its 2012 level, the Berenberg analysts said.

Spain’s biggest carrier Telefonica SA offered to acquire Royal KPN NV’s largest business, E-Plus, to create Germany’s largest wireless carrier by customers on July 22.

“Drillisch has a lot to gain from the proposed merger between Telefonica Deutschland and E-plus in Germany,” as the company could profit from improved regulations to access mobile networks, the analysts said.

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