Scope affirms rating of Hungary's Magyar Telekom
Scope Ratings GmbH, as a result of its annual credit rating review, has affirmed MTel's issuer credit rating of BBB+ with stable outlook, along with the BBB+ senior unsecured debt rating.
The affirmation reflects Scope’s view of the Hungarian telecom incumbent’s strong and stable positions in the domestic mobile and broadband markets together with its moderate leverage,
Scope said.
The business risk profile (BBB+) benefits mainly from the low cyclicality in the telecom industry and the company’s leading position in mobile and broadband markets in Hungary, which strongly supports its competitive position.
Magyar Telekom has a share of different segments of its domestic market that are above those of most other European telecoms operators. The company’s share of the mobile market shrank marginally in 2021, while the company increased slightly again its share of the broadband market. As the Hungarian telecommunications market is mature, Scope does not expect a significant change in market share.
The purchase by Hungarian IT-telecommunication group 4iG of broadband provider DIGI, followed by recently announced project of the acquisition of Vodafone Hungary, is unlikely to materially affect Magyar Telekom’s competitive positioning in the short to medium term. The group also benefits from a strong position in North Macedonia, though that provides only limited diversification for the group as it represents just 11% of the group’s revenues.
The company’s profitability is stable, recording a 30.9% EBITDA margin after leases in 2021, somewhat below that of main European peers, partly due to telecom and utility taxes in Hungary. Nevertheless, the group faces narrower profit margins in 2022 and 2023, to contract by about 3pp, after the Hungarian government introduced a temporary supplementary telecommunications tax (equivalent to an extra cost of about HUF 25bn a year). Profitability should recover to previous levels as long as the tax does not become permanent.
The company has also recently introduced clauses in its General Terms and Conditions allowing inflation adjusted price changes based on the official consumer price index, thereby offering some protection against potential inflation effects.
- A positive rating action is possible if deleveraging happened faster than expected, with Scope-adjusted debt (SaD)/EBITDA falling below 1.5x on a sustained basis.
- A negative rating action is possible in case of significant change in competitive positioning following the acquisition of Vodafone Hungary by 4iG, or in case of the payment of higher shareholder returns and higher capex that lead to a significant increase in leverage towards 3.0x on a sustained basis.
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