ANALYST VIEW - Nomura downgrades Hungary's Magyar Telekom to 'Reduce', cuts TP

“Although shares are not significantly overvalued and offer strong FCF and dividend yields, the stock has recently significantly outperformed its peers. At the same time, increased investor risk appetite led Hungarian market outperformance against Polish and Czech indices," said Nomura’s research analysts, Viktor Shvets and Jean Kaplan.

Essentially they look at MTel as a “relatively expensive telecom stock" within increasingly extended Hungarian local market.

Fundamentally, they expect MTel “to deliver two to three years of declining revenue and EBITDA, driven by an intensely competitive environment, disappearance of the last vestiges of voice and an aggressive roll-out of new products."

Although Shvets and Kaplan view the group’s management guidance for 2010 as being fair, they see a “strong possibility" of further erosion of consensus estimates into 2011-12.

“In the CEE 3 region, we prefer TPSA or Tel O2, although regionally much better values are to be found in VIP and MTN," the analyst added.

In view of the above, they have slightly eased back their valuation to HUF 745 from HUF 760, on the back of further weakening of LT growth rates.

“Although our estimates assume that revenue and EBITDA will stabilise in 2012-13E, it is quite possible that fundamental erosion could be deeper and extend beyond that period," Shvets and Kaplan concluded.

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