Sunrise Communications reiterates guidance after solid Q2 results

Sunrise Communications AG reported Q2 results with revenue of CHF732 million, slightly beating consensus, and adjusted EBITDAaL of CHF254 million, exceeding forecasts by 3%, driven by cost savings and the full benefit of recent price increases. While post-paid mobile additions of 18,000 and flat broadband additions fell short of expectations, the company emphasized a strategic focus on value over volume, reflected in slowing ARPU declines. Free cash flow rebounded to CHF153 million, and Sunrise maintained its 2025 guidance for broadly stable revenue and stable to low-single digit EBITDAaL growth, offering a 7.4% dividend yield with approximately ten years of Swiss withholding tax exemption.

Analysis

Sunrise Communications AG reported mixed but fundamentally stable second-quarter results, with performance underscoring a strategic shift towards value over volume. While revenue declined 0.8% year-over-year to CHF732 million, this figure modestly beat consensus estimates and marked a significant improvement from the 3.3% decline in Q1, aided by the full impact of price increases. The key highlight was the 1.9% growth in adjusted EBITDAaL to CHF254 million, which surpassed forecasts by 3% due to effective cost management. This profitability beat was tempered by softer subscriber metrics, with post-paid mobile net additions of 18,000 and flat broadband growth both falling short of expectations. However, the company's strategy is supported by improving ARPU trends, with the rate of decline slowing for both mobile and fixed-line services. Free cash flow saw a strong seasonal rebound to CHF153 million, and the company confidently maintained its full-year 2025 guidance for broadly stable revenue and low-single-digit EBITDAaL growth. The firm's investment proposition is anchored by a 7.4% dividend yield, made more attractive by its Swiss withholding tax-free status for an estimated ten years, though this is set against a high leverage of 4.4x.

Key Decisions for Investors

• Income-oriented investors should note the attractive 7.4% dividend yield, which benefits from a decade-long Swiss withholding tax exemption, but must weigh this against the risk posed by the company's 4.4x leverage.
• Investors should closely monitor future ARPU trends as the primary indicator of success for management's 'value over volume' strategy, as continued improvement is needed to offset weak subscriber growth.
• The reaffirmation of full-year guidance provides a degree of stability, but any deviation from the projected CHF370-390 million in free cash flow should be seen as a critical red flag for debt service and dividend sustainability.
• Given the balance between a strong EBITDA beat and soft subscriber figures, the results support a stable to cautiously optimistic outlook, suggesting that significant share price appreciation may be contingent on more definitive proof of a successful strategic turnaround.