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1. Company Snapshot

1.a. Company Description

freenet AG provides telecommunications, radio and multimedia, mobile communications, mobile Internet, and digital lifestyle services in Germany.It provides a portfolio of services and products primarily in the areas of mobile voice and data services.The Mobile Communications segment offers mobile communications services, such as marketing of mobile communications services, which include voice and data services from the mobile communications network operators; sells and distributes mobile communications devices, as well as offers additional services for mobile data communications and digital lifestyle; and planning, construction, installation, and maintenance services for WiFi networks.


The TV and Media segment provides services to end users in the field of DVB-T2 and IPTV; and planning, project management, installation, operation, service, and marketing services for broadcast-related solutions for business clients in the radio and media sectors.The Other/Holding segment offers portal services, such as e-commerce/advertising services; payment services; various digital products and entertainment formats for downloading and displaying, as well as use on mobile devices; communication development solutions, IT solutions, and other services; and voice and data services.The company provides its services under the mobilcom debitel, GRAVIS, MEDIA BROADCAST, klarmobile.de, freenet ENERGY, vitrado.de, FUNK, freenet BASICS, freenet MOBILE, freenet VIDEO, freenet.de, freenet FLEX, freenet TV, waipu.tv, CARMADA, The Cloud, and freenet Business brands.


It operates approximately 520 mobilcom-debitel shops and 40 GRAVIS stores.The company sells its products through approximately 400 electronics stores, as well as online platforms.freenet AG was founded in 2005 and is headquartered in Büdelsdorf, Germany.

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1.b. Last Insights on FNTN

Freenet AG's recent performance has been driven by its resilient European market presence, with the STOXX Europe 600 Index rising 2.11% amid strong corporate earnings and hopes for geopolitical resolutions. The company's dividend yield, which has been increasing, now offers a compelling opportunity for investors seeking to balance income generation with potential capital appreciation. Additionally, the European market's positive shift, with the STOXX Europe 600 Index rising 1.40% amid hopes of lower U.S. borrowing costs, has further boosted investor interest in dividend stocks like freenet AG.

1.c. Company Highlights

2. Strong Q3 Earnings with Growth in Postpaid and TV Services

The company's Q3 financial performance was robust, with adjusted EBITDA growing 4% to EUR 138 million, driven by the growth in postpaid and TV service revenues. The EPS came in at '0.773', in line with analyst estimates. Revenues were slightly down due to the sale of The Cloud, which lost EUR 10 million in revenues. However, gross profit increased by 7% in Q3, driven by IPTV. The company's free cash flow in the first 9 months grew 2.8%, despite a one-time tax payment of EUR 20 million.

Publication Date: Nov -13

📋 Highlights
  • Q3 Adjusted EBITDA Growth:: Achieved 4% growth in Q3 and 1.6% in the first 9 months, driven by waipu.tv's IPTV profitability (EUR 25M EBITDA YTD, targeting EUR 30–35M for 2024).
  • Guidance Confirmation:: Maintained 2025 guidance (EUR 395M annual EBITDA) with Q4 needing EUR 125–145M EBITDA, supported by 2.8% free cash flow growth in the first 9 months.
  • Mobile Business Challenges:: Revenue decline of EUR 10.3M due to The Cloud sale, offset by postpaid net adds exceeding expectations and 50+ churn-reduction initiatives improving conversion rates.
  • Free Cash Flow Impact:: One-time EUR 20M tax payment from a past tax issue reduced free cash flow, though management expects reimbursement, with CapEx reduced to EUR 26.8M (down from EUR 55M guidance).

Segmental Performance

The postpaid net adds exceeded expectations, with strong customer growth. Waipu.tv growth has recovered, and the company is on a strong path. The TV business revenue increased by 10% in Q3, driven by waipu.tv's positive developments. Waipu.tv's EBITDA year-to-date is EUR 25 million, and the company expects it to reach between EUR 30 million and EUR 35 million by the end of the year. As Robin John Harries mentioned, "We're pleased with our customer growth, with postpaid net adds exceeding expectations."

Guidance and Outlook

The company has confirmed its '25 guidance and is on track to meet it. The CFO expects a stable service revenue in the fourth quarter. The guidance for the full year is still open, as the company wants to be prepared for potential growth opportunities during Black Week and Christmas. The marketing expenses are expected to be lower than last year, but the company may increase investments if there are chances for profitable growth.

Valuation

The stock is trading at a P/E Ratio of 12.8, EV/EBITDA of 6.6, and a Dividend Yield of 7.01%. Analysts estimate next year's revenue growth at 5.0%. The current valuation multiples suggest that the stock is reasonably priced, considering its growth prospects and dividend yield. The ROE is 17.7%, indicating a strong return on equity.

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.40%)

6. Segments

Mobile Communications

Expected Growth: 2.5%

Freenet AG's Mobile Communications segment growth of 2.5% is driven by increasing demand for mobile data services, expansion of 5G network infrastructure, and strategic partnerships to enhance customer experience. Additionally, growing adoption of IoT devices and rising mobile payment transactions contribute to the segment's growth.

Television and Media

Expected Growth: 1.8%

Freenet AG's Television and Media segment growth of 1.8% is driven by increasing demand for digital media, expansion of fiber-optic networks, and strategic partnerships. Additionally, the rise of streaming services and online content consumption contributes to the segment's growth, as well as the company's focus on providing high-quality content and innovative services.

Other/Holding

Expected Growth: 1.2%

Freenet AG's Other/Holding segment growth of 1.2% is driven by increasing demand for digital services, strategic investments in innovative technologies, and expansion into new markets. Additionally, the company's focus on cost optimization and operational efficiency has contributed to the growth.

7. Detailed Products

Mobile Communications

Freenet AG offers a range of mobile communication services, including mobile phone contracts, data plans, and mobile internet services.

Fixed-Line Communications

Freenet AG provides fixed-line communication services, including landline phone connections, internet, and TV services.

Digital Lifestyle

Freenet AG offers a range of digital lifestyle products and services, including streaming services, online storage, and cybersecurity solutions.

Internet of Things (IoT)

Freenet AG provides IoT solutions and services, enabling businesses and individuals to connect and manage devices, machines, and sensors.

Wholesale

Freenet AG offers wholesale services to other telecommunications companies, enabling them to resell Freenet's products and services.

8. freenet AG's Porter Forces

Forces Ranking

Threat Of Substitutes

Freenet AG operates in a highly competitive market, and there are many substitutes available to customers. However, the company's strong brand recognition and customer loyalty help to mitigate the threat of substitutes.

Bargaining Power Of Customers

Freenet AG's customers have a high bargaining power due to the availability of alternative service providers. The company needs to focus on customer retention and loyalty to maintain its market share.

Bargaining Power Of Suppliers

Freenet AG has a diversified supplier base, which reduces the bargaining power of individual suppliers. The company's strong relationships with suppliers also help to mitigate any potential risks.

Threat Of New Entrants

The threat of new entrants in the telecommunications industry is moderate, as there are significant barriers to entry. However, Freenet AG needs to continuously innovate and improve its services to stay ahead of potential new entrants.

Intensity Of Rivalry

The telecommunications industry is highly competitive, and Freenet AG faces intense rivalry from established players. The company needs to focus on differentiating its services and improving its operational efficiency to stay competitive.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 26.11%
Debt Cost 5.53%
Equity Weight 73.89%
Equity Cost 7.40%
WACC 6.91%
Leverage 35.34%

11. Quality Control: freenet AG passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Proximus

A-Score: 6.9/10

Value: 9.3

Growth: 3.4

Quality: 5.2

Yield: 9.4

Momentum: 7.5

Volatility: 6.3

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KPN

A-Score: 6.4/10

Value: 4.1

Growth: 4.1

Quality: 5.9

Yield: 7.5

Momentum: 7.0

Volatility: 10.0

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Freenet

A-Score: 6.3/10

Value: 6.6

Growth: 3.2

Quality: 7.5

Yield: 9.4

Momentum: 4.0

Volatility: 7.0

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Telia Company

A-Score: 6.2/10

Value: 4.4

Growth: 2.6

Quality: 4.0

Yield: 9.4

Momentum: 7.5

Volatility: 9.3

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United Internet

A-Score: 5.6/10

Value: 5.9

Growth: 4.4

Quality: 3.0

Yield: 6.9

Momentum: 9.0

Volatility: 4.7

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Tele2

A-Score: 5.5/10

Value: 3.0

Growth: 3.2

Quality: 5.8

Yield: 8.8

Momentum: 9.5

Volatility: 3.0

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

27.9$

Current Price

27.9$

Potential

-0.00%

Expected Cash-Flows