Orange Polska raised to BUY, TP PLN 8.20 - Strategic shift bodes well for the future
We increase our target price by 6% from PLN 7.70 to PLN 8.20 and upgrade the stock to BUY following a solid 4Q 19 results release and optimistic outlook for 2020. The company signalled that it may present a new strategy in mid-2020, which, in our view, could be a trigger for the share price. We assume that Orange Polska may seek to cooperate with financial partners on monetising its fibre networks and could consider various methods to monetise towers. Assuming moderate spectrum capex in the upcoming auction, we also reckon with a firm declaration about a return to dividend payments. We forecast DPS of PLN 0.25 starting from this years profit. We model an outflow of PLN800mn to purchase spectrum in 2020, but we see chances for a lower value if the starting price is not hiked by the regulator from currently PLN 450 mn per block. The company may also surprise positively with its cost savings target in the new strategy. The sharp employment cuts envisaged for 2020-2021e may be followed by further optimisation. Lower capex for FTTH after 2021 (partly offset by higher spending on 5G), cost cuts, growing prices of mobile services, a larger fibre footprint, a lower share of legacy business and further successful expansion into the ICT area should help to drive cash flow dynamics upwards (from the current low base) in the upcoming years.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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