Autorius: DnB NORD bankas, Parašyta: 2007-10-17 13:54.
URL: https://www.traders.lt/page.php?id=1164
In what might become a welcome tradition, TEO LT Q3 results beat our expectations once again. With expected dividend yield of 12.4%, the position has fortified itself in being #1 dividend case in the Baltic market. We strongly reiterate BUY recommendation with a target price of LTL 3.18.
Completion and revenue recognition of an LTL 7M one-off project during Q3 resulted in the +41% better than expected other (IT, TV, Data) sales, bringing the overall sales growth to +4.6% above estimates. Adjusted for the one-off item, however, total sales, +1.2% higher than anticipated, were largely on target, as both broadband and IPTV subscriber numbers turned out as expected (at 226K and 14K respectively), except for a boost in WiFi customers during the summer season. Still, even after adjustment, the small improvement in sales allowed EBITDA to best our estimates by +4.1%, while the margin, at 45.6% has even surpassed our estimates by +1.2%, despite a +4.2% increase in expenses, mainly attributable to increased cost of labour, which can be explained by tense situation in Lithuanian labour market.
We upgrade our full-year 2007 sales target to LTL 793.1M, for a +7.9% y/y growth, with fixed line sales up +0.6%, broadband by +17.4%, and other (IT, TV, Data) sales +78%. Expenses are expected to be +12.3% higher, bringing EBITDA margin down to 44.6% (previously 46.7%). This would result in bottom line EPS of LTL 0.21 (+26.7% y/y), and a dividend of LTL 0.30 per share, for an 12.4% dividend yield (LTL 0.21 per share and 8.7% respectively if the company brakes our assumption of continued pay out all excess cash in the form of increased dividend).
While cash generation abilities of the company remain healthy as ever due to both voice and broadband sales continuing to best expectations, it becomes a real challenge to efficiently manage the huge pile of cash the company has accumulated. With average yield on liquid assets being only ca 3.3%, effectively allowing inflation to eat into shareholder value, we see it as a waste of money and resources, if the management and the main shareholder do not change their attitude toward the cash distribution and pay out all of it as extra dividend already in 2008.
Despite being +31% above last close figure, we see our target price of LTL 3.18 as a viable goal for the company’s share price during the next half year. Compared to the DJ Stoxx Global 1800 Telecom Index, TEO LT stock has witnessed massive underperformance. Whereas US mortgage crisis and the resulting credit crunch has sent the global telecom index up by +17% during the last two months (due to comparatively low debt and low underlying risk of the industry), TEO LT has all but depreciated in value. Should the stock be noticed by a major institutional investor, the underperformance is not expected to continue for long.
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Mantas Pakėnas
Kapitalo rinkų skyrius / Capital Markets Unit
DnB NORD Investment Banking
J. Basanavičiaus g. 26, 03601 Vilnius
Tel./phone: +370 5 2393776
Faksas/fax: +370 5 2393783
El. paštas/e-mail: mantas.pakenas@dnbnord.lt