Telenor upbeat after strong Q3, airs Orascom doubts

OSLO Wed Oct 27, 2010 5:18pm IST

The Telenor logo hangs on flags outside one of their stores in Stockholm October 26, 2007. REUTERS/Bob Strong/Files

The Telenor logo hangs on flags outside one of their stores in Stockholm October 26, 2007.

Credit: Reuters/Bob Strong/Files

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OSLO (Reuters) - Norway's Telenor ASA posted strong earnings and increased its 2010 guidance on the back of vibrant Asian mobile markets, extending a streak of forecast-beating results by European telecoms groups.

Telenor also aired fresh doubts over 36-percent-owned Russian mobile group Vimpelcom's plan to buy Egypt's Orascom for $6.6 billion, a deal which faces a number of hurdles but which the Norwegian operator initially backed.

"Vimpelcom has the capacity (to expand abroad) but the parameters around a potential acquisition or merger must also be in place," Chief Executive Jon Fredrik Baksaas told Reuters.

"They were not sufficiently in place when the press release was issued (regarding the Orascom negotiations).

"Now (Vimpelcom) are in a period of negotiations where some of these issues must be clarified further before the board can take a final position on the case."

Seeking to maximise dividends from its operations, Telenor has previously questioned the deal with Orascom but its latest comments helped push Orascom shares down 6 pecent.

STRONG ASIA, WEAKER NORDICS

Third-quarter adjusted core earnings (EBITDA) of 7.89 billion crowns ($1.36 billion) slipped from 8.19 billion a year ago but topped all 25 analyst forecasts in a Reuters survey, whose predictions ranged from 6.92 billion to 7.77 billion.

The earnings from Telenor, which has operations throughout the Nordics, central and eastern Europe and emerging Asia, follow strong third-quarter numbers from Swedish TeliaSonera and Dutch KPN.

"We now expect higher organic revenue growth and EBITDA margin, as well as a somewhat reduced capex-to-sales ratio," Baksaas said.

He said Asia posted organic revenue growth of 13 percent this quarter -- compared with 6 percent for all of Telenor -- and that it had held or boosted positions in all markets.

Telenor raised its 2010 guidance for organic revenue growth to 5 percent from 3-5 percent and for its EBITDA margin to 30-31 percent from 28 percent.

It trimmed capital spending to around 12 percent of revenues from an earlier 12-13 percent. It also reduced its loss expectations for its nascent India operations in 2010.

"This is a very strong report," said Espen Torgersen, analyst at Carnegie. "They're increasing their guidance both for the group and not least for India, which is important."

Telenor shares started 1 percent higher but ran into profit-taking after a 9 percent rise over the past two weeks.

At 1126 GMT the stock was off 1.2 percent at 93.1 crowns in a flat Oslo market and amid slight gains by the European telecoms sector.

Telenor said the Nordic region continued to benefit from mobile data growth as more subscribers switch to high-traffic smartphones but that revenue growth has been hit by reduced international roaming fees and increased competition.

Telenor said last month that the global telephony market has started to pick up in emerging economies, but investors remain wary of its expansion into the crowded Indian mobile market.

It reduced its India capex by 500 million crowns to 1.5-2.0 billion and changed its guidance for this year's EBITDA loss to 4.5 billion crowns from 4.5-5.0 billion.

Baksaas said he was pleased by "promising development" in the third quarter in India "with strong growth in subscriptions and increased average revenue per user".

But he said it was unclear if the trend would continue and that capex cuts were mainly deferrals of spending until 2011.

Telenor shares trade at 11.7 times 2011 earnings, in line with TeliaSonera and higher than European peers Telefonica on 10.3 times and France Telecom and KPN, both on 9.5 times.

(Editing by David Cowell and Michael Shields)

($1=5.803 Norwegian Crown)

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