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OTE (Hellenic Telecoms) | First thoughts: Q4 numbers well ahead but shareholder remuneration not to excite

New shareholder remuneration not exciting – OTE has announced a €500m proposed return to shareholders in 2022, up 5% yoy but in line with market estimates. That said, the remuneration will be equally split between dividends and buybacks (€250m each), rather than skewed to the former as we (and we believe the market) had anticipated. As a result the proposed DPS of €0.558 is below consensus (€0.789). Mgt has also articulated a new shareholder return policy for the coming years, guiding for distribution of 70-100% of annual net free cash flow. With most estimates already incorporating distributions of €500-550m in the coming years, the news comes as no surprise and might disappoint investors anticipating a more generous return. Mgt’s intention to “examine the use of any cash flow reserves which may be accumulated in the medium term, together with past surpluses” is somewhat vague in terms of timeline, but it does leave some scope for top-ups to the aforementioned number.

Q4 EBITDAaL +12% yoy, above estimates even after adjusting for one-offs – As far as the results are concerned, these exceeded expectations, with OTE delivering Q4 adj. EBITDAaL of €332m, +12% yoy and +7% above our estimate. The beat was underpinned by a 5% increase in Q4 revenues, 5% above our estimate, thanks to a very solid performance in Greece (Q4 revenues 4.5% higher yoy) helped by strong retail fixed, easy comps in wholesale and good momentum in mobile (revenues ex roaming a bit lower than +2%). From a geographic viewpoint, Greek EBITDAaL increased 7% yoy, sequentially stronger than Q3 (+5%), while Romania profitability normalized from the depressed (and negative) levels of Q4’20 (€10m vs €5m losses last year). Overall, OTE ended the year producing 3.4% revenue growth while generating EBITDAaL of €1,296m, +6% yoy and 5% higher than 2019 levels. OTE also seems to have recovered c80% of roaming revenues lost in 2020.

Greek KPI momentum continues unfettered – We note the following: 1) Healthy underlying trends in Greek mobile, with service revenues +2% on tougher comps; 2) unfettered momentum for GR fixed (retail revenues +2%, similar to Q2-Q3) driven both by BB (fiber uptake +49K from 44K in Q3 and 51K in Q2) and TV (+24K net adds helped by subscriber migration after the acquisition of Greek football league rights).

Valuation – OTE shares have gained an impressive c50% in the last 12 months vs a mere 11% return for the EU telecom sector. The shares have also outperformed both the +23% return registered by the ASE main gauge and the 16% gain for Greek non-financials. As a result, OTE has now closed the valuation gap vis-à-vis the EU telecom sector both in terms of EV/EBITDA (now trading at a small premium) and FCF yield. In the light of a new remuneration policy which does not seem to be too generous, in view of potentially intensifying competition in the coming years by the combined Nova-Wind (and potentially PPC in wholesale fiber) and in the absence of other concrete near-term catalysts, we stick with our Hold rating.