Cyfrowy Polsat: Dividends – so near and yet so far (stays HOLD)

Cyfrowy Polsat’s (CPS) price has dropped 8% ytd and, as a result, its Bloomberg consensus 1YF EV/EBITDA has reached 6x, close to 1 SD below its two-year historical average. We see the derating as justified, considering: 1) the low growth outlook, where we expect a 2017-20E reported EBITDA CAGR of 2.6%, and a pro-forma EBITDA CAGR of 0%; 2) levered capex needs related to fixed-line network upgrades and payments for frequencies piling up from 2020E, as well as our expectation that it should purchase the remaining stake in Netia in 2019E; and 3) its low dividends in the medium term, implying 1.4-2.4% dividend yields in 2018-20E (vs. its peers’ 5% median). Moreover, we believe CPS might be interested in further M&A, which could harm the dividend story further. We have raised our EBITDA forecasts by 2-5% in 2018-20E and our capex expectations by 42-109% (Netia acquisition), but cut our DPS estimates by 33-55%. Our revised forecasts imply 6.8-6.2x 2018-19E EV/EBITDAs, 20-11% premiums vs. its peers. We maintain our HOLD rating on the stock, and cut our price target (PT) to PLN 25/share.