Equity
ANALYST VIEW - Fourth Hungarian mobile carrier can cause Magyar Telekom headaches - KBC
“The recent recovery of MTel’s shares has largely priced-in the decline of Hungary’s 10-year bond yields as the chances improved of a credit-line agreement with the IMF/EU. After the better-than-expected 9M11 results, the underlying EBITDA decline could meet the firm’s guidance of -4.0% y/y in full-year 2011," said Gergely Pálffy and Piotr Janik, analysts at KBC.
They expect MTel’s headline EBITDA to improve in 2012 “due to a drop in fixed-line losses in Hungary and the absence of one-off investigation and severance costs."
“However, the loss of mobile market share and falling ARPUs due to the entry of a fourth MNO (mobile network operator) in Hungary along with the recessionary environment represent significant headwinds for MTel, which are not yet reflected in consensus forecasts," the analysts added.
Thus their EBITDA estimates are 3.3% below the consensus for 2013 and 8.2% below for 2014.
The fourth MNO could have some negative impacts on MTEL, “such as the loss of up to 215k mobile subscribers (or 5% of the subscriber base) if the new consortium’s market share reaches 3.0% by 2016, ARPU (average revenue per user) destruction of 4% on average, fewer state orders and rising interconnection costs."Pálffy and Janik believe MTel’s dividend per share (DPS) should remain at HUF 50 in 2012 and 2013, while other CEE telcos may continue to offer better premiums to their respective 10-year government bond yields.
They upped their fair value for the telco by a mere 3.3% to HUF 475 per share (from HUF 46), which implies 11% downside. The ‘Sell’ rating remains unchanged.
The analysts said MTel is over-valued. “On our 2012F EV/EBITDA of 5.1x, MTEL trades at a 1% discount to the CEE telco median of 5.2x and we believe this could expand further. Threats include the market share loss from a fourth mobile player (i.e. declining headline EBITDA in 2014), political risk and weakness in household spending. Catalysts include rising mobile broadband/TV substitution and the absence of one-off costs from 2013."
They expect MTel’s headline EBITDA to improve in 2012 “due to a drop in fixed-line losses in Hungary and the absence of one-off investigation and severance costs."
“However, the loss of mobile market share and falling ARPUs due to the entry of a fourth MNO (mobile network operator) in Hungary along with the recessionary environment represent significant headwinds for MTel, which are not yet reflected in consensus forecasts," the analysts added.
Thus their EBITDA estimates are 3.3% below the consensus for 2013 and 8.2% below for 2014.
The fourth MNO could have some negative impacts on MTEL, “such as the loss of up to 215k mobile subscribers (or 5% of the subscriber base) if the new consortium’s market share reaches 3.0% by 2016, ARPU (average revenue per user) destruction of 4% on average, fewer state orders and rising interconnection costs."Pálffy and Janik believe MTel’s dividend per share (DPS) should remain at HUF 50 in 2012 and 2013, while other CEE telcos may continue to offer better premiums to their respective 10-year government bond yields.
They upped their fair value for the telco by a mere 3.3% to HUF 475 per share (from HUF 46), which implies 11% downside. The ‘Sell’ rating remains unchanged.
The analysts said MTel is over-valued. “On our 2012F EV/EBITDA of 5.1x, MTEL trades at a 1% discount to the CEE telco median of 5.2x and we believe this could expand further. Threats include the market share loss from a fourth mobile player (i.e. declining headline EBITDA in 2014), political risk and weakness in household spending. Catalysts include rising mobile broadband/TV substitution and the absence of one-off costs from 2013."
