Since consumers are increasing using e-commerce methods to do everything from shopping for groceries and ordering takeout to downloading music and movies, most economic activity is connected to the internet through websites, blogs, social media profiles and various applications. For many companies, this technology is fundamental because it allows them to reach a large number of potential customers all over the world, which is a very powerful catalyst for further growth.
In order for companies to stay competitive, they are reliant on a connection that is stable and fast. Thus, sudden interruptions or a slowdown in the connection cannot be tolerated.
Worldwide businesses have come under pressure, so Covid-19 support and resilience packages have allocated billions of dollars to enhance their internet performance through the adoption of ultra-broadband fiber optics. By using very thin, flexible fibers of glass or other transparent materials with a diameter of one-tenth of a millimeter or less, this technology allows data transmission at a speed of up to one Gigabit per second, much higher than telecommunication via traditional electrical cables. This speed is crucial for the correct management of multimedia content, which e-commerce is increasingly adopting on platforms.
Over the next several years, e-commerce will be a large user of fiber optics, which globally is projected to grow up to $8 billion by 2026, marking a 75% increase from the level recorded in 2020, according to a market study recently published by Global Industry Analysts Inc.
Europe is expected to grow very fast, reaching more than 30% of the global market share in four years' time. The Netherlands is going to be one of the leading countries as its economy is strongly based on international trading, with countless companies having an internet presence. A study from the Netherlands Authority for Consumers and Markets shows that 20% of Dutch households are accessing TV, telephone and internet service via fiber optic technology. Thus, the Dutch market of fiber optic infrastructure represents a great opportunity for various telecommunication operators to increase their profits within the next several years.
Among the various local companies, Koninklijke KPN N.V. (KKPNY, Financial) (KKPNF, Financial) seems to be strongly positioned. The Rotterdam-based landline and mobile telecommunication company, which is also known as KPN, plans to provide more than 65% of households in The Netherlands with the option to use fiber optic technology by 2025.
Since Dutch villages and small urban centers are characterized by high rates of population density, the company is also exploring ways to quickly extend the service in these areas. The company says it has raised the necessary funds to allow nearly one million new users to connect to the internet via fiber optics.
There will be fierce competition to capture market share due to the presence of players like T-Mobile US Inc. (TMUS, Financial) and Ziggo Holding B.V. (ZIGGF, Financial), but KPN is well equipped to fight against its rivals.
From a financial standpoint, the company says its conditions are solid as it relies on almost $1.1 billion in cash and cash equivalents. The capital is aslo well-structured, as indicated by a higher-than-average leverage ratio of 2.21 and interest coverage ratio of 4.31, which suggests the company can easily sustain interest expenses for the time being.
From an operational standpoint, second-quarter figures show the business remains resilient as it managed to increase the 12-month free cash flow on a year-over-year basis by more than 15% to nearly $ 650 million despite the negative effects from the pandemic.
Shares of Koninklijke KPN are poised to trade higher over the coming years, and could eventually outperform the market. Wall Street also likes this stock, as it has issued an overweight recommendation rating.
Further help should come from the semi-annual dividend that the company is currently paying to its shareholders. On Aug. 12, Koninklijke KPN will distribute approximately 5.3 cents per common share, determining a forward dividend yield of around 3.3%.
The company's American depositary receipts have climbed 20.22% for a 52-week range of $2.36 to $ 3.57, a price-earnings ratio of 9.37 and an enterprise value-Ebitda ratio of 5.45. The 50-day moving average is $3.21, while the 200-day moving average is $3.32.
Over-the-counter shares have gained 24.42% for a 52-week range of $2.31 to $3.62, a price-earnings ratio of 9.47 and an enterprise value-Ebitda ratio of 5.5. The 50-day moving average is $3.1980, while the 200-day moving average is $3.32.
The stock has a market cap of $13.5 billion and doesn’t seem expensive.
