Equity
Hungary Magyar Telekom might pay larger than HUF 25 dividend in 2017
Positives
- MTel’s profits came in higher than what analysts expected.
- Although total revenues dropped 4.7% year-on-year, the drop was caused mainly by the restructuring of the group’s energy business (exit from the residential segment). Adjusted for this factor revenues were up 0.4% and adjusted for System Integration/IT revenues, they grew by 1.2%.
- Mobile revenues in Q3 increased by 4.5% year-on-year to HUF 82.7 billion as higher mobile data and equipment revenues offset shrinking voice retail and SMS revenues. The group had revenues of HUF 14.8 billion (+45%) from mobile equipment sales only.
- TV revenues amounted to HUF 11 bn (up 3.4%) in Q3, mainly driven by the growing IPTV subscriber base and ARPUs in Hungary. IPTV subscribers generate as much as 62% of the Group’s TV revenues.
- Operating expenses dropped 7.8%, within which direct costs were down 12% and personnel expenditures decreased by 22% yr/yr.
- Free cash flow leaped 76% yr/yr in January-September to HUF 29.8 bn, which makes it increasingly likely that a handsome dividend will be paid next year. Management guidance is for HUF 25 dividend per share, but it is already evident that MTel would have the opportunity to pay an even higher sum.
- MTel’s net debt dropped to HUF 398.7 bn (-6.4%), the lowest print in more than two years. Net debt / total capital went down to 41.6%, and so it got closer to the targeted 30-40% range. According to management, further decline is expected in the fourth quarter and with the net debt ratio on a downward trajectory it should reach the targeted range in the coming years.
- Management raised its revenue target for this year to around HUF 595 bn from HUF 580-590 bn previously (the consensus estimate is HUF 597.8 bn), and now expects about HUF 193 bn EBITDA (earnings before interest, taxes, depreciation and amortisation), vs. HUF 187-191 bn projected earlier (the consensus is HUF 193.5 bn). In the rationale, MTel said it no longer expects Digi to enter the mobile market in 2016 whilst household spending power in Hungary is on the rise. MTel believes that its revenues will also continue to be supported by contribution from residential electricity services, which the group does not plan to withdraw before March 2017. MTel reiterated its CAPEX guidance (excluding any spectrum acquisitions and annual frequency fee capitalization) for 2016 and previously stated targets for 2017.
Negatives
- Fixed line revenues decreased by 3.7% to HUF 50.8 billion in Q3 as improvement in TV and other revenues was offset by the decline in voice retail, equipment, data and wholesale revenues. MTel witnessed a moderate decline in Hungary and a more substantial drop at both foreign subsidiaries.
- SI/IT revenues declined by 6.2% to HUF 15.7 billion due to lower revenues compared to Q3 2015 in all segments. In Hungary, the impact of fewer public projects due to lower EU fund inflows was partly mitigated by revenues generated from the financial sector, while in Macedonia and Montenegro two large projects boosted last year’s revenues.
MTel still attractive
Magyar Telekom is among the cheaper European telecom shares. Its EV/EBITDA ratio, a key indicator for investors, is only 4.6, which may be put down to the fact that its profit growth is smaller than at its sector peers.
