Orange Polska - More Upside After Business Rebirth, Mast Sale
Orange Polska (“Orange”) has undergone a successful transformation that enables it to grow earnings (with 9M’21 eEBITDAaL up 5.3% y/y) and generate relatively high free cash flow yield (2021E/2022E FCFE Yield = 9.0%/8.1%) while maintaining low debt (1.5x EBITDA ex. IFRS 16 as of 30 Sep. ‘21). The fact that high-speed broadband represents 66% of all connections supplied by Orange (of this, close to 42% are fiber connections), combined with consistent pricing adjustments, represent another source of upside. Orange has come a long way from where it was still a few years ago, when its profits were falling in a fiercely competitive market and its position in Polish fixed-line internet was shrinking due to obsolete network infrastructure. At 4.9x 2022E EV/eEBITDAaL, we see OPL, with its current investment profile, as undervalued with more room to run, and we maintain a bullish view on the telecom. Our 9M price target for OPL has been raised to PLN 9.50 to reflect FiberCo sale proceeds and pricing adjustments. Short-term upside catalysts that we see include expected further growth of 5.2% in Q4 2021 eEBITDAaL, and in the long run upside will be provided by potential mast sales and a return to 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.
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