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OTE (Hellenic Telecoms) | First thoughts: Q3 numbers in line, executing well

Q3 EBITDAaL 3.2% higher yoy, in sync with our numbers – OTE has reported Q3 results broadly in line with our estimates, delivering 3.2% yoy growth in adj. EBITDAaL (€352.5m vs EEe €351m). This was achieved thanks to a 1.8% increase in revenues (at €861m), quite healthy growth, albeit sequentially slower than Q2 given the tougher comparative. Performance in Greece (EBITDAaL 342m, +5% yoy) was very robust, with Romania profitability in line with our numbers and higher qoq. Reported PBT settled at €282m vs €11m last year, including several non-cash one-offs (investment losses, provision reversals etc). Cashflow-wise the quarter was quite solid, with OTE delivering adj. FCF of €116m (similar to last year). The latter was boosted by TR sale proceeds and partly absorbed by the dividend payment (€313m) and buybacks (€47m), thereby resulting in net debt falling to €428m vs €451m in Q2 2021. Q3 results reaffirm the group is on track to deliver adj. EBITDAaL >€1,270m in the full year.

Greek KPI momentum remains solid – We note the following: 1) Good underlying trends in Greek mobile, with service revenues +8% (+7.4% in Q2) or +4% ex. Roaming (similar to 2019 levels) ; 2) higher-than-envisaged Q3 contribution from roaming (90% of pre-COVID levels), with OTE looking on track to recoup in FY21 >60% of the roaming loss suffered during 2020; 3) unfettered momentum for GR fixed (retail revenues +1.8%, similar to Q2) driven both by BB (fiber uptake 44K vs 51K in Q2) and TV (21K net adds helped by subscriber migration after the acquisition of Greek football league rights).

Latest developments – Developments in the Greek telecom market have been quite interesting recently. In short: 1) In August 2021 United Group (owned by BC Partners) announced an agreement to acquire Wind Hellas (No 3 mobile operator with c22% market share with an additional c15% share in fixed BB). The transaction will allow the rebranded Nova to become No 2 player in both Fixed BB (c28% share vs OTE’s 51%) and Pay TV (c35% market share) while expanding its footprint in Greek mobile, thus becoming a fully converged player. 2) In Pay TV, there has been a reshuffling of the content portfolio of the two competitors OTE and Nova, with the former gaining a foothold in the Greek Football League (agreement with 8 teams, namely 60% of the matches) and the latter reportedly securing the Premier League rights post 2022 (for 6 years). In our view, these developments are likely to lead to somewhat more intense competition in the short term as the “enlarged” Nova seeks to cross-sell TV to Wind clients and migrate Nova BB clients to fiber. We also believe it is reasonable to expect some churn for OTE’s Pay TV after the expiration of the Premier League broadcasting rights in Q2 2022. On the other hand, though, we expect this to be offset by the winning of Vodafone TV customers (after the end of the wholesale agreement with Nova).

Valuation – OTE shares are flat vs their level prior to the Q2 results, trailing a c2% gain for Greek non-financials but outperforming by 4% the EU Telecom sector over the same period. Our PT is based on a SOTP, effectively valuing OTE at c6x 2022 adj. EV/EBITDA, just small discount vs the EU sector. In the absence of concrete near-term catalysts, we stick with our Hold rating. As a reminder, OTE shares will trade ex dividend (gross €0.2521 special DPS related to the Romanian disposal) on 15th November.