4Q16 results – a 5.7% miss on adjusted EBITDA due to higher costs

We rate Wirtualna Polska’s (WPL) 4Q16 results negatively. Pro-forma revenue growth of 14% is decent, but the 20% reported growth in sales, vs. c.30% yoy in the past three quarters, shows that the acquisition-fuelled momentum is coming to an end, in our view. Moreover, the company recorded a poor adjusted EBITDA margin of 30.0% vs. 32.7% in 4Q15, resulting from higher employment and external services costs, due partly to the launch of WP TV in December – the TV project generated PLN 2.7m of negative EBITDA in 4Q16. Therefore, the adjusted EBITDA came in 5.7% below our forecast. Reported EBITDA was 2.5% lower than our expectations and 8.6% below the consensus. A beat was recorded at the net income level, but due solely to one-offs. Adjusting the NI for the options revaluation and applying the statutory 19% tax rate, we arrive at adjusted net income of PLN 17.1m, 5.3% below our forecast. We also highlight that the weak FCF and EBITDA conversion was the result of the repayment of contingent liabilities due to the purchase of shares in NextWeb Media, as well as high other capex (c.PLN 13m vs. c.PLN 8m quarterly), also probably due to the TV project launch, in our view.