Orange Polska – Defensive Play, Demand For FTTH Might Increase
We have revised our outlook on Orange Polska ("Orange") to account for the expected consequences thus far of the current epidemic – obviously, the situation is still developing and circumstances are subject to change. The key risks we see as facing telecoms at the moment include increased network traffic, potential customer losses, weaker sales of electronics due to subdued demand, exacerbated by quarantine store closures, reduced use of international roaming, and, crucially for Orange, diminished prospects for selling noncore real estate at a good price. Our base-case scenario for Orange assumes that, against the backdrop described above, we will see a 3% decline in eEBITDAaL, and witness FCFE of PLN 391m, in 2020. The following year, assuming the epidemic is contained, EBITDA could rebound by 5.1%, supported by cost savings, and FCFE might increase to PLN 800m (10.4% Yield). On updated estimates, we set our new target price for OPL at PLN 6.90, and we upgrade the stock to buy. Below we also provide a best-case earnings outlook for Orange, which considers potential positive effects of price hikes facilitated by increasing data traffic. In the worst case, we discuss the possibility of an extended freeze on dividends.
Orange Polska SA is a supplier of telecommunications services in Poland. Co. provides services, including fixed-line telecommunication services, Integrated Services Digital Network, voice mail, dial-up and fixed access to the Internet and Voice over Internet Protocol. Co. is one of Poland's three DCS 1800 and GSM 900 mobile telecommunications providers. Co. provides also third generation UMTS services. In addition, Co. provides leased lines, radio-communications and other telecommunications value added services, sells telecommunications equipment, produces electronic phone cards and provides data transmission, telephone directories, multimedia services and various Internet services.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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