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OTE (Hellenic Telecoms) | Rally under scrutiny

Muted fundamentals, strong price performance ytd, mixed news flow; EBITDAaL growth far lower than EU peers, warranting a Hold – OTE shares have had several twists and turns in 2024, with the stock posting a modestly positive return in H1 followed by a rally until Nov and a c8% correction from its recent peak in the last few weeks. Catalyzing the bounce since early summer was a confluence of factors including the end of the decline in GR fixed (mainly due to easy comps), hopes for the sale of Romania and positive news for Pay TV. That said, with the fundamentals staying underwhelming, with 9M’24 adj. EBITDAaL just +0.5% yoy (paling in comparison with the >3% delivered by EU Telcos) at a time when OTE’s shares have returned c20% (ytd), we feel investors may have been jumping the gun in discounting future growth. As we explain in more detail in this note, we are less bullish about the magnitude of potential retail ARPU inflation, more cautious regarding the efficiency in the crack-down of illegal TV streaming and somewhat more wary about the PPC threat in high-margin wholesale. With the shares trading at c20% discount vs EU telcos – for €10m headwind annually stemming mainly from declining copper revenues as a result of the ongoing transition to fiber and the competitive build-out of FTTC/FTTH infrastructure. PPC’s FiberGrid has emerged as an additional potential market disruptor, targeting 0.5m premises passed by 2024e, 1.5m in 2025e and 3m in the next 4-5 years, with the latter being in sync with OTE’s deployment plan (3m by 2027e from 1.5m in 2024e). Although PPC is yet to make its fibre offering commercially available (in H1’25e) and OTE has moved decisively to fend off potential competition (e.g. 28% discount on FTTH wholesale pricing), competitive intensity looks set to increase. Overall, we estimate a c€18m yoy decline in OTE’s wholesale revenues in 2025e due to pressure on copper/FTTC coupled with lower unit price for FTTH. We model a waning impact looking further out as FTTH gains partly offset copper losses, assuming OTE loses just 12% of its wholesale subscriber base, far less than PPC’s business plan seems to indicate.

Cash returns debate and Romania – The disposal of Romania has suffered further delays, with OTE announcing it has signed an MoU for the sale of separate parts to VOD/Digi (and the parties in process of filing for approval with Rom regulators). Given that Romania is dilutive to group FCF, its eventual disposal will be a positive but is likely to have rather limited read-through for shareholder remuneration in our view, especially as the deal consideration is likely to be further diluted by advisory/legal fees etc. The recent €33m fine related to prior years’ miscalculated taxes further reduces the scope for the distribution of excess returns. The main value of Romania relates to a c€100m tax break which would boost 2026 CF in case the sale was to go through. However, we caveat that this would only partly offset the outflow required for the renewal of spectrum (2027). As such, we do not expect cash returns to exceed €500m in 2025-27e (c8% yield).