5G Network Modernization And Convergent Services Will Drive Strong Long Term Upside

Catalysts

About Sunrise Communications

Sunrise Communications is a Swiss telecom operator providing nationwide mobile, broadband, TV, and B2B connectivity and digital services.

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

• Completion of the 5G stand alone rollout and 3G switch off provides a modern, lower-cost network platform that can support richer services for both residential and B2B customers, lifting revenue potential while structurally improving EBITDA and free cash flow margins.
• Full multi brand coverage, including the new CHmobile budget offering, positions Sunrise to capture rising demand in the value segment without diluting the main brand. This supports sustained mobile subscriber growth and stabilizes blended ARPU and earnings.
• New convergent product launches, such as home security bundles, high end device and tariff packages, and unified content search on the TV platform, create incremental revenue pools with higher attachment rates and lower churn. This should drive higher average revenue per household and improved net margins over time.
• Growing B2B momentum, supported by tailored bundles for small retailers and the ability to layer security, payments, and connectivity, taps into ongoing digitalization of enterprises and is poised to offset fixed line headwinds. This supports top line growth and a richer gross margin mix.
• Ongoing OpEx and CapEx efficiencies, including benefits from network modernization, completed 5G coverage investments, and AI driven process optimization, are expected to more than compensate delayed fixed line stabilization. This translates moderate revenue trends into rising EBITDA, free cash flow, and earnings per share.

Assumptions

This narrative explores a more optimistic perspective on Sunrise Communications 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 Sunrise Communications's revenue will grow by 1.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -6.9% today to 14.9% in 3 years time.
• The bullish analysts expect earnings to reach CHF 461.6 million (and earnings per share of CHF 6.46) by about December 2028, up from CHF -205.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CHF-610.1 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 12.6x on those 2028 earnings, up from -14.3x today. This future PE is lower than the current PE for the CH Telecom industry at 23.3x.
• The bullish analysts expect the number of shares outstanding to grow by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.01%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The fixed line business is stabilizing more slowly than management expected, with negative Internet net adds, elevated churn and continued fixed subscription revenue decline. This suggests a structurally challenged segment in a maturing broadband market that could keep group revenue under pressure and weigh on long term earnings growth.
• Persistent fixed ARPU erosion from promotional intensity, post promotional repricing dynamics and discount reallocations toward mobile indicates limited pricing power in legacy connectivity services. This could cap net margins even if subscriber volumes and cost efficiencies improve.
• High and unchanged competitive intensity across all mobile segments, combined with extended Black Friday discount periods and a crowded budget space, raises the risk of sustained price based competition. This could dilute the benefits of CHmobile and other brands and compress mobile ARPU and EBITDA over time.
• Slow B2B adoption of new 5G stand alone and digital solutions, despite network completion, suggests enterprises may take longer to monetize advanced use cases than the narrative assumes. This could limit the ability of B2B revenue and higher margin services to offset structural headwinds in fixed line and device renewal cycles and would constrain long term revenue mix improvement and free cash flow growth.

Valuation

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

• The assumed bullish price target for Sunrise Communications is CHF65.0, which represents up to two standard deviations above the consensus price target of CHF48.17. This valuation is based on what can be assumed as the expectations of Sunrise Communications'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 CHF65.0, and the most bearish reporting a price target of just CHF36.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be CHF3.1 billion, earnings will come to CHF461.6 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of CHF40.56, the analyst price target of CHF65.0 is 37.6% 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.