Fiber Expansion And Converged Services Will Drive Strong Long-Term Upside

Catalysts

About Swisscom

Swisscom is an integrated telecom and IT provider serving consumer, enterprise, and wholesale customers in Switzerland and Italy.

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

• Ongoing 5G plus and FTTH expansion in both Switzerland and Italy is lifting the share of high quality, fiber based and premium mobile connections. This is supporting structurally higher ARPU, lower churn and improving group revenue and EBITDAaL over time.
• Scaling sovereign cloud, security, and AI chatbot offerings for consumers and SMEs in both markets is deepening customer integration into Swisscom’s IT stack. This is driving higher value added service revenue and expanding net margins as these software like services grow faster than legacy connectivity.
• Rapid growth in wholesale access lines, with nearly half of wholesale lines already on fiber in Switzerland and new wholesale partnerships in Italy, is turning network leadership into a recurring, capital light revenue stream that supports resilient earnings and cash flow.
• Accelerating convergence in Italy through combined broadband, mobile, and energy bundles plus a clear value over volume strategy is stabilizing RGUs and enabling front book and back book price alignment. This may slow service revenue erosion and support a rebuilding of EBITDAaL from 2026 onward.
• Execution on large integration synergies in Italy, including MVNO migration to own networks, IT and network consolidation, and cost transformation programs in Switzerland, is structurally lowering the cost base. This is supporting operating free cash flow growth and improving long term earnings visibility.

Assumptions

This narrative explores a more optimistic perspective on Swisscom 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 Swisscom's revenue will grow by 3.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.9% today to 12.6% in 3 years time.
• The bullish analysts expect earnings to reach CHF 1.9 billion (and earnings per share of CHF 41.82) by about December 2028, up from CHF 1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CHF1.5 billion.
• 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 22.0x on those 2028 earnings, down from 23.1x today. This future PE is lower than the current PE for the GB Telecom industry at 23.1x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.48%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent service revenue erosion in Switzerland, particularly from price competition in B2B and ongoing wireline ARPU pressure despite strong customer satisfaction scores, could offset modest volume growth and weigh on group revenue and EBITDAaL over the medium term.
• The Italian turnaround thesis depends on stabilizing Telco service revenues by 2026. However, accelerating mobile net losses, a service revenue decline already trending above EUR 200 million for 2025 and tougher year over year comparisons after large one off public sector projects create a structural risk that revenue and earnings recovery in Italy is slower or weaker than assumed.
• Management is already guiding revenue and CapEx towards the lower end of the range in both Switzerland and Italy. This signals a more muted top line and investment profile that, if prolonged, could cap long term growth in 5G plus and FTTH adoption and ultimately limit upside in earnings and operating free cash flow.
• The integration of Vodafone Italy and realization of roughly CHF 200 million of targeted synergies rely on complex network, IT and SIM migration programs. Any delay, cost overrun or customer churn spike during back book and front book price alignment could erode the expected margin uplift and pressure net margins and EBITDAaL.

Valuation

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

• The assumed bullish price target for Swisscom is CHF720.85, which represents up to two standard deviations above the consensus price target of CHF542.94. This valuation is based on what can be assumed as the expectations of Swisscom'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 CHF730.0, and the most bearish reporting a price target of just CHF366.87.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be CHF15.4 billion, earnings will come to CHF1.9 billion, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 4.5%.
  
• Given the current share price of CHF557.0, the analyst price target of CHF720.85 is 22.7% higher.
  
• 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.