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Play Communications: A year of transition

Since its IPO, Play’s share price has dropped by 28%, c20% of it just in May’18, which we see as an overreaction. First, we note that int’l and domestic roaming is the biggest culprit of the current EBITDA erosion and here we should see a turnaround in 2019. Second, expected DPS is strongly linked to FCFE and here EBITDA and Capex pressure can in the vast majority be offset by improved working capital, cash interest and taxes paid. Thus, keeping DPS at PLN 2.57 with an impressive 11% DY looks possible and while it should consume the majority of FCFE it should not be a problem as debt repayment is not Play’s priority right now which the market seems to forget. Third, even if the T-Mobile/UPC merger happens, looking at past telco deals it should take around a year for anti-monopoly approval, during which time Play gets stronger in its network assets and product portfolio (AirFiber). In our view, CPS/NET/UEFA/ElevenSports deal is the biggest threat for CATH/DTH platforms whose competitive advantage was always determined by payTV content or fixed-network quality which is now gradually turning in favour of Cyfrowy Polsat or Orange Polska. We maintain our BUY rating but cut the FV to PLN 32.4 (from PLN 40.5), incorporating the DPS of PLN 2.57 and 4/4/6% 18-20E EBITDA cuts due to exp higher roaming costs and slower handset sales.