Fibre And 5G Expansion Will Transform Long Term Earnings Quality And Resilience

Catalysts

About Proximus

Proximus is a Belgian telecom group that provides fixed and mobile connectivity, fiber, and related digital services to residential and business customers, as well as international communication platforms through Proximus Global.

What are the underlying business or industry changes driving this perspective?

• Extensive 5G coverage above 85% and fiber-to-the-street reaching 47% of Belgian homes and businesses position Proximus to capture higher value data usage and premium connectivity. This can support service revenue quality and domestic EBITDA.
• Rising fiber adoption, with 684,000 active fiber customers and a filling rate of 33%, gives Proximus room to move more customers onto higher value tiers and more efficient infrastructure. This can influence ARPU, margins and free cash flow.
• Growing convergent and residential bases, including 12,000 new convergent customers and 12,000 new Internet lines in Q3, improve customer stickiness and cross sell potential. This tends to support recurring service revenues and earnings resilience.
• B2B opportunities around hybrid cloud, cybersecurity, sovereign cloud and AI at the edge, underpinned by the Proximus network footprint and partnerships with hyperscalers, offer potential for higher margin digital services that could lift B2B revenue mix and group EBITDA over time.
• Reshaping of Proximus Global away from legacy A2P SMS and P2P voice towards cloud, omnichannel, IoT, travel SIM and digital identity, combined with cost synergies and integration work, targets a return to EBITDA growth from 2027 that could improve group earnings and reduce pressure on cash generation.
• CapEx efficiencies from integration of Fiberklaar, higher self installation and refurbishment, along with the noncore asset disposal program targeting €600m by the end of 2027, support organic free cash flow and can influence the net debt to EBITDA trajectory and financial flexibility.

Assumptions

This narrative explores a more optimistic perspective on Proximus compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Proximus's revenue will remain fairly flat over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 7.4% today to 6.7% in 3 years time.
• The bullish analysts expect earnings to reach €441.0 million (and earnings per share of €1.03) by about January 2029, down from €473.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €333.0 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2029 earnings, up from 4.9x today. This future PE is greater than the current PE for the GB Telecom industry at 4.9x.
• The bullish analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.57%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Proximus Global is highly exposed to legacy A2P SMS, CPaaS one time password traffic and P2P voice, all of which management describes as structurally pressured. If the newer activities like cloud, omnichannel, IoT and digital identity remain smaller for longer than expected, the ongoing 12.2% direct margin decline and 22.3% EBITDA decline in Global could continue and weigh on group earnings.
• Management has already reset the 2026 Proximus Global EBITDA ambition to a range of €100m to €130m and is only targeting a return to EBITDA growth from 2027. Any further delays in integration, leadership stability or go to market execution could mean a prolonged period of weaker profitability and reduce the contribution to group EBITDA and free cash flow.
• The domestic B2B unit is seeing a 0.8% revenue decline and a 1.1% decline in service revenue, driven by ongoing pressure in fixed voice and mobile services. If this structural erosion in traditional connectivity revenue is not offset by IT services and newer solutions, it could gradually compress domestic revenue and margins.
• Competition in Belgium remains intense, with Digi entering on aggressive pricing and competitors pushing B brands with assertive promotions. If Proximus cannot keep defending its customer base and pricing through its multi brand approach and price increases, there could be pressure on service revenue, ARPC and domestic EBITDA.
• The investment heavy fiber and 5G rollout, along with large scale collaborations in Flanders and ongoing negotiations in Wallonia, depend on regulatory approvals and efficient execution. Any delays, less favorable terms or lower than expected fiber filling rates could limit the benefit from lower CapEx guidance, constrain organic free cash flow and keep the net debt to EBITDA ratio higher than planned.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Proximus is €10.86, which represents up to two standard deviations above the consensus price target of €8.13. This valuation is based on what can be assumed as the expectations of Proximus's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €10.88, and the most bearish reporting a price target of just €6.4.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €6.6 billion, earnings will come to €441.0 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of €7.15, the analyst price target of €10.86 is 34.2% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.