NOS, S.G.P.S., S.A. (ZONNF) Q1 2026 Earnings Call Transcript

NOS reported Q1 2026 consolidated revenue of EUR 460 million, up 1.9%, with EBITDA rising 2.1% and EBITDA minus CapEx improving 18% to EUR 84 million. Recurring free cash flow, excluding extraordinary items, increased 22% to almost EUR 80 million, while recurring net income rose 7.9% to EUR 60 million. Management also highlighted a stronger balance sheet with 1.4x leverage and S&P's upgrade of the credit rating to BBB.

Analysis

The cleaner takeaway is not just better quarterly execution, but a widening moat in capital intensity. A business that can compound EBITDA while pulling back investment and still expand cash conversion is usually signaling either pricing power, mix shift, or both; here the mix shift toward higher-margin IT and away from more cyclical telco pressure appears to be doing the heavy lifting. That matters because the market typically underwrites telecoms on sluggish top-line growth, but the valuation inflection comes when the equity story transitions from “defensive yield” to “self-funded growth with deleveraging optionality.”

The second-order effect is on competitive behavior in the domestic market: weaker players will be forced to defend share with lower pricing or heavier promo spend just as this name is optimizing spend, which can widen the gap in free cash flow durability over the next 2-4 quarters. The rating upgrade is also meaningful beyond optics — once leverage gets comfortably anchored around the current level, management has more room to resume capital returns or selectively re-risk into software/services, which is where multiple expansion tends to come from.

The main risk is that this is a quality-quarter, not necessarily a permanent regime shift. If IT growth normalizes and telco competition stays irrational, the market could reframe the outperformance as temporary margin management rather than structural earnings power; that would cap rerating over the next 3-6 months. On the other hand, if the GenAI efficiency program continues to drop through to cash flow, consensus may still be underestimating how quickly the company can convert EBIT stability into equity value through buybacks and lower leverage.

Contrarian view: the stock may be too cheap relative to the cash conversion trajectory, especially if investors are still anchoring on legacy telecom multiples. The asymmetry is better than it looks because downside is increasingly protected by balance sheet and FCF, while upside comes from multiple expansion if the market starts treating the IT/tech mix as the core earnings engine rather than a side business.

Key Decisions for Investors

• Go long ZONNF on any post-earnings consolidation over the next 1-2 weeks; target a 12-18% rerating if the market starts capitalizing the higher FCF run-rate instead of EBITDA alone.
• Pair trade: long ZONNF / short a more leverage-sensitive European telecom peer basket over 1-3 months; thesis is that capital intensity and competitive pressure will separate faster than consensus expects.
• If implied volatility is still elevated, sell downside puts 1-2 quarters out to monetize the improved balance-sheet floor; risk/reward favors premium collection given the strong recurring cash flow.
• Watch for confirmation of buyback or dividend uplift in the next 1-2 quarters; add aggressively if management signals capital return, as that would likely force a second leg of multiple expansion.