Autorius: DnB NORD bankas, Parašyta: 2007-07-25 11:44.
URL: https://www.traders.lt/page.php?id=502
TEO LT Q2 results beat our expectations in most categories. With expected dividend yield of 11.2%, the position is still by far the most attractive dividend case in the Baltic market. We reiterate BUY recommendation with a target price of LTL 3.02.
With overall sales growth +3.5% higher than we anticipated, the company has particularly surprised us in voice and broadband related sales, +3.6% and +6.3% higher than forecasted. As predicted, end of discount period for last year broadband subscribers has had a material impact on the sales growth. IT, IPTV, and other sales disappointed, being –12.4% lower than expected. Higher sales allowed EBITDA to best our estimates by +1.4%, despite the margin, at 44.5%, suffering –1% decrease due to +8.9% increase in expenses, mainly driven by growth in employee number and average compensation.
Despite further fall in fixed lines number, the company has surprised us by managing to slowly grow its revenue from its main cash generating business. Although we still forecast the revenues to start decreasing in the mid-term, we expect this to happen at a slower rate than previously thought, with a strong positive effect on the company’s cash accumulation abilities in the next five years.
Although the revenues of TEO’s broadband business were higher than exp ected, slower growth in subscribers is a warning sign for the company. It is as of now unclear whether the slowdown is of technical nature and can be rectified once the network backbone is finally upgraded (due in autumn), or indicates negative trends in population’s broadband adoption rates, which would have a significant impact on the company’s mid term prospects.
The same applies for IPTV, with potential growth being very sensitive to network capacity issues. We will have to wait for Q3 or even Q4 results before being able to evaluate whether the company is capable to deliver its new content services with the existing infrastructure, or it will not be before 2008 and full transition to optic fibre that we can expect the growth to pick up.
We upgrade our full-year 2007 sales target by +2.2% to LTL 768.5M, with fixed line sales up +1.9%, internet by +6.9%, and other sales down by –15.3%. Expenses are expected to be +0.7% higher, resulting in +0.8% improvement to EBITDA margin, at 44.8%. This would help the bottom line reach EPS of LTL 0.19, and a dividend of LTL 0.29 per share, for an 11.2% dividend yield (LTL 0.19 per share and 7.33% respectively if the company brakes our assumption of continued pay out all excess cash in the form of increased dividend).
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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
Parsisiųsti: DnB NORD reiterates BUY recommendation for TEO LT [LTL 3.02] 
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