DT: Reaction post-TMUS move
Given the sharp move in the TMUS price and $/€ exchange rate over the past two months, we provide a quick update on what this implies for the DT valuation.
Overview
T-Mobile US reported earnings last night and even though financial guidance metrics were raised for 2025, the company very marginally missed on post-paid net adds.
My colleague Jonathan has written up a detailed review on the conference call here, and then a detailed review of the results here.
We show a key summary of the guidance changes below, as although there were modest upgrades to the financial metrics (including their guidance on service revenues and ARPU), there was no upgrade to post-paid net adds.
Changes to TMUS 2025 guidance
Given TMUS was trading yesterday at a multiple of 11x EBITDA, high expectations are being priced in for ongoing good execution and positive surprises on phone net adds, but this isn’t the first time that TMUS has missed on post-paid phone net adds vs. consensus, which also happened in Q4 22 and Q1 23.
TMUS post-paid phone adds vs. consensus
However, plotting the post-paid phone adds vs. consensus vs. the share price moves, today’s move does look outsized as in the other two recent quarters when phone adds have missed expectations (also including a Q1 report), the share price moves have also been down but by 3-4%, rather than today’s 11% move.
TMUS share price move vs. post-paid phone adds relative to consensus
The reaction by the market today has been sizeable with the stock trading off 11% at the time of writing. Therefore, this raises the question of what is being priced in by the DT share price. Clearly, DT’s shares don’t move perfectly in sync with TMUS every day, but given that c.65-70% of DT’s value lies in their TMUS stake, there should be some degree of correlation and with sizeable moves like this, it is worth cross-checking what is being priced in.
Not only has there been the sizeable 11% move today, but we have also seen over the past two months the €/$ rate move from 1.04 to 1.14, ie a 10% move.
Therefore in the chart below, we show the movement in the DT €-based share price – up 8% YTD, the TMUS $-based share price – up 7% YTD after today’s pullback, and the €-$ rate – up 10% YTD.
As a result of this, the equity value in DT from stripping out the TMUS stake in €-terms is now being valued at €29bn, which is a breakout from the range it has been trading in this year around the €20bn level.
Implied equity value in DT-ex US has risen sharply today
In the “very” near-term, this would suggest that the quoted DT price down 5% today is not necessarily factoring in the full impact of today’s TMUS move.
Even though this leaves the residual equity value trading out of its recent trading range, we still think that the residual DT equity looks attractive at the current price.
Our target price for DT is based on valuing DT’s German assets at 5.5x EBITDAaL, and the European assets at 6.1x EBITDAaL. On this basis, we believe that the ex-US business should have an equity value of €56bn, vs. the current value of €30bn.
Our current official target price for DT of €42/ share is then also based off a TMUS share price of $270 with a 1.09 FX rate. If we were to mark that to market, ie today’s price of $234 (which we think is too low) with an FX rate of 1.14, then we would still derive a fair value for DT of $37/ share, or 20% upside.
DT ex-US equity value of €56bn + TMUS = $37-42/ share
