EUR 400.00 For Business Accounts Only

Play Communications: Attractively valued with robust FCFE

We keep Play at BUY but trim FV to PLN 29.1 (from PLN 32.4) owing to (1) 1% cut in our 18E/19E/20E EBITDA forecasts and (2) revised dividend guidance which negatively impacted the DDM valuation. Although Play cut its 2018 dividend guidance to PLN 300-400m vs PLN 650m before, we would not panic as it was not a result of a deteriorating FCFE profile, which was the case for Orange Polska. What is more, FCFE guidance at PLN 750-800m is in our view more what the market expected implying an impressive FCFE Yield of 14-15% which Play now wants to distribute equally between dividend distribution and deleveraging. Remember high debt was raised recently as higher risk related with Play. Hence, in our view, a lower dividend should not be perceived as negatively as it is also not perceived negatively in Cyfrowy Polsat’s case (18E EV/EBITDA of 6.7x, P/E 12.1x, FCF ca. 10%, ND/EBITDA at 2.9x but DY 0%). We also positively rate Play’s network rollout guidance upgrade to 7k sites in 2018 vs ca. 6.8k before as it does not follow an overall Capex increase which means that Play became more effective in network rollout (possibly a result of the recently signed agreement with Ericsson). PLN 117m of transition costs in 1H18 (RLAH, network rollout, national roaming) should gradually decrease starting from 2019 and boost EBITDA. In our view, 2018 EBITDA guidance of PLN 2.1-2.2bn is possible at upper level as LTM EBITDA stands at PLN 2.2bn and we see no major one-offs that could distort trends seen in 1H18. On our numbers, Play trades at very attractive multiples; 18E EV/EBITDA of 5.4x, P/E of 7.8x, FCFE 14.2% and DY 6.2%.