OTE | First thoughts: Results in line; shareholder returns in 2021 at €480m, +20% yoy translating into a 8% yield
Results in line – OTE has released Q4’20 operating results in sync with our estimates, with Q4 adj. continuing EBITDAaL (after leases) -5.8% yoy (vs our -5% estimate) at €295m, weighed down by losses in Romania and a tough comparative. Underlying trends in Greece seem to have picked up (positive revenue growth in the quarter, sequential improvement in mobile), underpinned by ongoing KPI momentum.2021 shareholder returns in sync with our expectation: 8% yield, comprising €0.68 dividend (5.4% yield) and €167m buyback – Most importantly, the outlook looks quite confident (“progressive but measured return to better operating conditions”) with OTE guiding for adjusted FCF of €575m, lower than 2020 levels, presumably due to the higher cash tax and ICT-related working capital outlays but in sync with our estimate (€565m). The dilution from one-offs will be significantly lower than in 2020, namely €110m working capital release. Adj. FCF was diluted by €243m one-offs (VES, spectrum), leading to reported FCF of €413m, still a bit ahead of mgt guidance (€400m). Net debt excluding leases shaped at €682m (from €649m in 2019).
Q4 KPI momentum stayed solid – Greek fixed trends stayed resilient with healthy BB take-up (net adds of 41K vs 24K in Q3 and 44K in Q2) and strong VDSL adoption (59K vs 46K in Q3 and 53K in Q2). Pay TV subs were also surprisingly strong at 12K. In GR mobile, service revenues were down -2.5% in Q4, but showcasing sequential improvement vs the high-single digit drop registered in the previous 2 quarters (due to the roaming drag). Overall, Greek revenues increased 2.9% reversing the -1.1% and -3.8% declines in Q3 and Q2 respectively. EBITDAaL fell -0.8% at €300m. In Romania, revenues were down 30% due to lower wholesale/ICT, while EBITDAaL was negative €5m (from €11m positive last year) dragged down by one-offs to facilitate the stand-alone transition.
Valuation – We base our valuation on a blended methodology (DCF for the Greek business, 4x EBITDA for Romania mobile) effectively valuing OTE at c6.1x 2021e EV/EBITDA, small discount to the EU sector.
Hellenic Telecommunications Organization is a full-service telecommunications group. Co. provides local, long-distance and international fixed-line telecommunications services in Greece and Romania, and mobile telephony services through its Cosmote subsidiary in Greece, as well as in Albania, Bulgaria, the Former Yugoslav Republic of Macedonia and Romania. Co. also provides internet access services and Internet Protocol (IP) -based telecommunications applications, as well as information technology application development and hosting services using IP technologies. Also, Co. provides several other telecommunications services, including value-added services and public telephone services.
Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.
Research is the backbone of Eurobank Equities' platform, with a team of 4 professionals committed to generating actionable investment ideas by providing timely research products. We are committed to offering value-added services to clients by filtering market noise and providing insights on the multiple sectors that we cover. Our universe includes 26 - large, medium and small cap - companies whose market capitalization amounts to 80-85% of the total market capitalization of the Athens Stock Exchange. Our research team also maintains the capacity to generate ad-hoc research for micro-cap listed companies.
Our team has consistently gained recognition among institutional investors for its quality research, having ranked No. 1 team in Greece at the Extel Surveys of 2013-2016 and 2018. We have also been named Leading Brokerage Firm in Greece over 2014-2016 and in 2018.
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