Mobile data – growth engine for Silknet during COVID-19 pandemic
COVID-19 related lockdown and stay-at-home orders have demonstrated the extent of reliance on telecom operators globally. Demand on telecom services, both fixed broadband and mobile data is growing prompted by large numbers of people moving to work-from-home and self-isolation state. 1Q20 data confirms the trend in Georgia, with mobile data traffic almost doubling compared to the same period last year. Silknet has seen 2.6x increase in mobile data traffic in 1Q20, due to improved 4G infrastructure and low base of 2019.
The competition in the mobile segment remains intense, despite decline in market share by subscribers (from 35.7% to 34.8%), Silknet managed to increase share in sector revenue by 1.7ppts to 37.0% over 1Q 2019-20, mostly due to increased ARPUs earned on retail customers. In the meantime, Veon continued adding new customers (+1.3ppts in market share by subscribers, mostly new mobile data users as a go to second-sim operator in Georgia) and maintained solid 18% market share by revenue (earning lowest ARPUs), while Magticom’s market share by revenue declined by almost 2ppts in the same period. In fixed segment, by aggressively penetrating the rural markets, Magticom managed to gain 2.6ppts and 2.8ppts in fixed broadband and pay TV subscriber base, respectively over March 2019-20.
Silknet generated GEL 387.2mn in revenues and GEL 203mn in EBITDA in 2019. With growing share of profitable mobile segment, Silknet’s profitability improved, with EBITDA margin growing by 5ppts to 52.4% in 2019. COVID 19 related economic disruptions put pressure on different business lines of telecom operators. We forecast a low single digit decline in Silknet’s revenue in 2020. Significant portion of Silknet’s debt is unhedged, exposing the company to FX volatility risks. Net Debt-to-EBITDA jumped to 2.95x in 1Q20 from 2.75x by end-2019, mostly due to GEL’s significant depreciation (14.5%). Further 10% depreciation of GEL would bring Silknet’s Net Debt-to-EBITDA ratio to 3.3x, based on our calculations. For the first time since March 2020, Silknet’s Eurobond is trading at a premium to par.
Please see the full report for detailed coverage of Silknet’s FY19 & 1Q20 performance.
