EFTA Document EFTA01385534

> TMT Deutsche Bank KPN — Keval Khiroya, BUY, close €2.9, €4.2 tgt, 45% upside ■ Dutch wireless market solid. The Dutch market has shown increasing signs of rationality over the past two years and KPN performs well within this, with the company highlighting low mid-single digit underlying service revenue growth in the most recent quarter. • Wireless consolidation helpful. Most of the price competition has been contained to the low-end, where Tele2 and T-Mobile NL have been active. The two operators recently announced they would consolidate (announced 15-Dec) and this should further help trends at the low-end. • Cost cutting progress on track. KPN has guided to continued opex reduction through to 2019 and a reduction in capital intensity, given a high starting point (19% domestic capex/sales). This should further help continued FCF growth (2017 — 20e EFCF CAGR of >15%). ■ B2B revenue trends are improving. This has been a major area of concern, but Q3's -4.9% decline was better than the prior quarter (-5.9%) and the 2016 decline of -7.3%. A potential return to stable revenues over the medium term would be a key positive. • Consumer fixed remains solid. KPN's main fixed competitor, Ziggo, remains rational following the integration with Vodafone. Both operators have put through price rises in return for higher speeds. KPN delivered 3.2% consumer fixed revenue growth in the most recent quarter. • Valuation remains attractive: KPN trades in-line with the sector on an EFCF yield of 6.5%, but with low risk and premium EFCF growth. Dividend yield is 5.4% vs peers 5.0%. ■ Catalysts: Q4 results 31-Jan-18, progress of Tele2-TMNL deal. Related DB Research: Tele2 and T-Mobile NL consolidation a positive (Khiroya) Price/month for iPhone contracts, total value split over 24 months 75 70 65 1 60 1 55 -1 50 45 40 AVG/m (RHS) KPN 10GB (5GB until June 17) T2 5GB (4GB until Feb 17) KPN 20GB cony (10GB until June 17) 57 57 57 56 56 58 59 58 57 58 56 55 55 55 56 57 63 63 Q- -1/4 +0k i• 300 250 200 150 100 so 0 Source: Deutsche Bank. Company data. Phone 8 256GB from Sept-17. iPhone 7 128GB from Sept-16. Phone 6.5 64GB until Sep1-16 KPN EFCF (pre associate dividends), EURm 900 800 700 600 500 400 300 200 100 0 552 683 2015 2016 Source: Deutsche Bank eels. Company data 855 727 2017 '018 Deutsche Bank Research* Euopean Equity Focus —.Jemmy 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0086820 SDNY_GM_00233004 EFTA01385534