Hrvatski Telekom raised to BUY, TP HRK 204 - Treating the weak 2020e as an exception

In the Covid-19 pandemic environment telecoms seem like one of the most resilient sectors, as electronic communication channels are used more than ever. In case of Hrvatski Telekom the main downside could be a significantly lower number of tourists in Croatia in 2020e, as there will likely be no preseason. Furthermore, we expect the main season to be significantly weaker than it would normally be, even if we assume the scenario of an easing of the restrictions imposed on peoples movement and hospitality/leisure industry operations in June. Still, the overall 2020e top-line decline should not exceed the lower single digits, even in case of total absence of visitor revenues in 3Q 2020e. We have assumed that visitor revenues ranged from HRK 200-250 mn in 2019. Nevertheless, strong operating cash flow generation and almost no debt are advantages in current circumstances, as the financing of the CAPEX plan as well as dividend payouts should not be jeopardised. The proposed dividend for 2019 amounts to HRK 8, implying a dividend yield of 4.9% at the current share price, which sounds decent compared to the CEE peers. We set our DPS estimates at HRK 6 for 2020e (management guidance) and at HRK 8-10 for the following years.