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OTE | Q2 preview: EBITDAaL +6.5% yoy on revenue uptick and easy comps

A strong Q2 with robust EBITDAaL growth… – OTE will release its Q2’21 results on 5th Aug pre-market open. With comps being quite easy (Greek revenues -3.8% in Q2’20) and with Pay TV discounts rolling off, OTE looks set to post quite a strong Q2 performance delivering EBITDAaL of €309m on our estimate, +6.5% yoy further underpinned by continuing strength in fixed BB (especially fiber) and a bounce-back in Greek mobile (both underlying and on account of roaming). We also expect slightly higher yoy profitability in Romania, especially as the Q2’20 base is not setting the bar too high. In the absence of significant VES-related costs, we anticipate continuing net profit to shape in the €90m area, substantially higher than last year’s levels, cautioning though that the effective tax rate is a rather precarious equation to solve given the impact on deferred tax from the change in the corporate tax rate. Cashflow-wise the quarter is also likely to be solid, with OTE delivering adj. FCF c€144m on our numbers. Given the dividend was not paid until 2nd July, we expect OTE to have ended Q2 on a net debt position of 2% underlying growth in mobile service revenues further propelled by improving roaming (contributing c1.4% of Greece EBITDA growth) and a strong quarter for handsets (boosted by the govt’s voucher scheme). All these will coalesce into c5% Greek revenue growth (to €722m) and €303m EBITDAaL, +6.4% yoy also underpinned by cost savings.

Outlook remains firm; heading for EBITDAaL >€1,270m, €45-50m higher yoy (c4% growth) – The main concern going into 2021 was the % of retracement of roaming profitability (€40m EBITDA normally on an annual basis, with 2020 suffering >50% decline) and the duration of pressures on mobile. With OTE likely to have managed to grow EBITDA €24m yoy in H1, we believe the group is primed to deliver FY21 EBITDAaL of at least €1,270m, namely c€45m higher yoy (c4% growth). This will be quite a solid performance and assumes OTE will recover just 50% of 2019 roaming revenues, which we believe is by no means aggressive and is in line with tourism industry expectations that inbound tourism will retrace 40-50% of 2019 levels in 2021.

Valuation – Ahead of Q2, we have updated our model to reflect solid trends, thus raising our adj. EBITDAaL by c1%. We have also recalibrated our assumptions regarding depreciation and tax. Rolling forward our valuation to July 2022, we have lifted our PT to €15.8. The latter continues to be based on a SOTP, effectively valuing OTE at c6x 2021 adj. EV/EBITDA, small discount vs the EU sector. With OTE offering a c10% 12m cash return (incl. the special divi from TR fixed sale and buybacks) and ordinary shareholder remuneration poised to increase further in the future, we find the risk-reward profile attractive, taking into account the limited downside risk to FCF generation.