Q1 – reassuring
Results should reassure after recent underperformance
Q1 was in-line for the ex-US business and a relatively straightforward quarter – see Figure 1 for the beats and misses. 2026 Group guidance nudged higher reflecting TMUS upgrade with ex-US reiterated. With the shares -11% over the past month and flat YTD (vs a sector +21% YTD), we think expectations going into the quarter were low and that Q1 should reassure. We see DT shares as too cheap, both at a Group level and also for the ex-US stub – particularly relative to the broader sector. We think DT shares are due a catch-up with the sector. There have been three factors weighing on DT: [1] Concerns about competitive dynamics in the US (although Q1 results from the US operators should alleviate these concerns); [2] The impact of satellites; and [3] questions about a potential merger with TMUS – see our note addressing the Q&A (link). Separately, we see several areas of upside in Germany: [1] DT could be a fibre beneficiary amid legislative changes making it easier to deploy fibre in MDUs (link); [2] Upside from potential mobile consolidation (see p24-25 – link) and; [3] German fibre capex of up to €3bn pa dropping out longer term.
Q1 – German trends in-line/reassuring
TMUS reported Q1 results two weeks ago and slightly raised its full year expectations for postpaid accounts, EBITDA and FCF (link). In Germany, Q1 total service revenues were +1.1% (cons +1.1% after +0.4%/+1.5% in Q3/Q4) with German adj. EBITDAaL +2.5% to €2,699m (cons +2.5% to €2,700m after +0.1%/+3.5% in Q3/Q4). Within the mix, German mobile service revenues were +2.1% (cons +2.1% after +1.6%/+2.4% in Q3/Q4) with post-paid net adds of +200k (cons +225k after +314k/+282k in Q3/Q4) – we think there was some slowdown in net adds post price rises for the additional SIMs in the family plans. Fixed service revenues grew +0.7% (cons +0.7% after -0.3%/+1.1% in Q3/Q4) with broadband net adds of -3k (cons -7k after -25k/+2k in Q3/Q4). DT increased broadband prices in April by +4-5% for around half its base however the impact of this move will be seen from Q2. Our recent German pricing analysis shows DT have become more promotional in the market following these price rises (link). Overall, DT is outperforming peers in the German market. For the overall ex-US business, adj. EBITDAaL growth was +2.5% to €3,783m (cons €3,789m after +1.8%/+5.1% in Q3/Q4). Ex-US FCF was €1.9bn in Q1 (cons €1.4bn) but the beat was phasing of German capex and ex-US FCF guidance of €3.7bn for the FY is unchanged (cons €3.7bn).
2026 Guidance nudged higher reflecting TMUS update
For 2026, DT raises guidance at the Group level reflecting the upgrade at TMUS and reiterates ex-US guidance. Group adj. EBITDAaL is guided to be €47.5bn (vs €47.4bn before) with Group FCFaL of >€19.8bn ( vs €19.8bn before) based on an FX rate of 1.13 (cons on 1.17). Adjusting for consensus FX, Group guidance would be for €46.4bn of adj EBITDAaL (cons €46.6bn) and >€19.3bn of FCF (cons €19.5bn). For the ex-US business, DT is guiding for adj. EBITDAaL of €15.4bn (cons €15.5bn).
Valuation: PT based on SOTP/DCF
On a Group level, DT trades on 13.0x PE for 2026E (sector 16x) but offers double-digit pa constant currency EPS growth with a 4.0% dividend yield and ~8.8% EFCF yield (sector 6.5%). The equity value for the ex-US stub is €34bn compared to a range of €15-20bn in recent years or >€40bn prior to the TMUS/Sprint merger in 2020. On multiples, this implies an ex-US EV/EBITDA of 4.8x vs 6-7x historically and 6.6x for the broader European sector.
