4Q16 EBITDA above our estimates, but 2017E DPS guidance below expectations
We rate Magyar Telekom’s 4Q16 results as positive, with slight growth at the EBITDA level and a surge in FCF. The high net income, while driven by a non-cash one-off, is also positive as, via an equity increase, it drives down the net debt ratio on which Magyar’s dividend policy is based. The dividend guidance for 2017E may, however, be seen as disappointing, in our view – a flat DPS of HUF 25, below both our expectation of HUF 35 and the Bloomberg consensus of HUF 32 – especially in the face of our high 2017E FCF forecast of HUF 55bn excluding the proceeds from Crnogorski Telekom sale, and HUF 93bn including the transaction. We believe that the dividend decision is a result of management’s concerns over further Hungarian mobile segment evolution due to the new player (DIGI) entering the market in spring this year, as well increasing competition in the fixed-line market from UPC and DIGI, which has intensified the rollout of optical networks. The 2017E FCF guidance (excluding the proceeds from the unit sale) implies a 10.1% FCF yield (or 18% including the one-off), vs. its peers’ median of 7.1%, so Magyar still looks attractive from this point of view. However, a DPS of HUF 25 implies a dividend yield of 4.8%, which is broadly in line with its peers’ median.Magyar Telekom is engaged in the providing fixed line and mobile telecommunication services for public and business customers. Co. provides voice and non-voice (SMS, MMS, internet, data and content provision) within mobile services; voice, data, internet and TV services within fixed line services. In addition, Co. sells equipment needed for using fixed line and mobile services (telephones, tablets, notebooks, TV sets etc.).
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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