Magyar Telekom - Every Little Helps…

Magyar Telekom – Instant Earnings Comment

Recommendation:  BUY (prev: Accumulate)

Target price (12M): HUF 545 (prev: HUF 510)

  Every little helps…

 

• After the new management guidance for the next three years (until 2021) we lift our 12m ex-dividend TP from HUF 510 to HUF 545 per share (+22% total return) and upgrade our recommendation to BUY reflecting the potential future financial performance of MTEL. Additionally, we apply a discount due to the relatively low FCF pay-out ratio (39%) compared to other DT subsidiaries (avg. 58%). Excluding this discount, our TP would have been at HUF 640 per share.

 

• The new guidance came very surprising for us, as we expected deteriorating EBITDA from 2019 as a result of the very competitive market and the pullback of SI / IT segment. Meanwhile the Management sees an EBITDA growth of 1-2% and an FCFF growth of 5% over the next three years (cumulative HUF 9 bn and HUF 11bn respectively) on the back of the cost cutting programme. In the best case scenario, the cumulative savings could be as high as the annual telecom tax (ca. HUF 25 billion), in our view. The Management’s positive outlook regarding the MTEL’s performance was also encouraging, given their conservative guidance.

 

 

• In light of the guidance, we raise our EBITDA and FCFF forecast for MTEL, implying a CAGR of 1-2% in EBITDA terms and a CAGR of 5% in FCFF terms in the next three years. To be more detailed, we lift our EBITDA forecast to HUF 195 billion and HUF 198 billion for 2019F and 2020F, respectively, while we also lift our 19F/20F FCFF forecast to HUF 12 billion and HUF 92 billion, respectively.

 

• Since cleaned FCF_MTEL pay out was relatively stable (at ca. 44%) in the last 2 years and the proposal for 2019 also indicates similar logic, one may expect that MTEL sticks to this “dividend policy” going forward (although we believe that they should increase that) MTEL should distribute HUF 31 DPS and HUF 33 DPS from 2020 and 2021 earnings.

                                                      

 

Gellert Gaál
Equity analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
Phone:
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MEMBER OF THE CONCORDE GROUP

 

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