DIGI Communications: Capex-heavy growth to continue (transfer of coverage – downgraded to HOLD)

We transfer coverage of DIGI Communications (DIGI) and downgrade our rating to HOLD (from Buy), with our price target (PT) cut to RON 38.0/share (from RON 51.2), implying 12% upside potential. We continue to appreciate the growth outlook offered by DIGI (a c.8% 2019-22E EBITDA CAGR), but note that it is generated thanks to DIGI’s capex-intensive business model, which translates into negative mid-term FCFs and marginal dividend payouts (a c.2% dividend yield vs. the 6% peer median) in our forecast period. In our telecoms coverage space, we prefer names with stable, high FCF streams and attractive investor remuneration, especially in the current uncertain economic circumstances. On the other hand, we would not be negative on DIGI, as its asset-heavy model has led to the accumulation of valuable fixed and mobile assets, which can be monetised at some point, in line with global trends. We believe DIGI’s current valuation, at 2020-21E EV/EBITDAs of 4.1-3.9x, c.24% discounts vs. its peers, is fair.