Magyar Telekom - Still Looks Good! - Earnings Revision From Concorde Ltd. (Hungary)
Magyar Telekom – Earnings Revision
Recommendation: Accumulate (prev: Buy)
Target price (12M): HUF 510 (prev: HUF 540)
Still looks good
- After a transfer of coverage, we assign accumulate recommendation and a 12M ex-dividend target price of HUF 510, implying 13% upside and a total return of 19%. Previously, we had BUY recommendation but in light of the headwinds from competition we now forecast EBITDA margin erosion from the current 30% to 27.5% in the next 3-4 years.
- Even assuming intensified competition over the following years, MTEL continues to generate massive FCFF (avg. HUF 60 billion throughout our explicit period with a ca. 13% FCF yield, HUF 67 billion in TV, vs. HUF 80 billion in 2018). These amounts should be more than enough to keep and even to increase dividend payment (to DPS 30 – 35; DY: 6.6 – 7.7%) and keep the current debt at low level.
- The upcoming new dividend policy from March 2019 could guide higher dividend if 5G spectrum auction will not be too expensive, in our view, which could trigger a rerating for the name (+15-20%).
Magyar Telekom is engaged in the providing fixed line and mobile telecommunication services for public and business customers. Co. provides voice and non-voice (SMS, MMS, internet, data and content provision) within mobile services; voice, data, internet and TV services within fixed line services. In addition, Co. sells equipment needed for using fixed line and mobile services (telephones, tablets, notebooks, TV sets etc.).
Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.
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