Cyrrus (Cyrrus)
Czech markets  |  March 01, 2013 15:01:46

Telefónica CR - a new target price of 343 CZK / accumulate


Results for 4Q landed after a long time a slight positive surprise especially at the level of sales. The company had sales last quarter of CZK 12.78 billion in market expectations CZK 12.69 billion and our estimate of 12.65 billion CZK. These numbers indicate that the erosion of sales may not be as rapid, as indicated by the results of some operators from neighboring countries.

The most important message was notified of the results of dividend. Speculated whether the dividend will be paid in the amount of 40 CZK, which was technically achievable, or whether the dividend will be lower.It turned out that the interest in maintaining a strong liquidity position exceeded interest debt-ridden parent company and the management has proposed a dividend of 30 CZK. This is the level that should according to our model to be sustainable for the next three years.

The good news is restoring buyback program. The company plans to repurchase during 2013 an additional 2% of the shares. Although such a report would be stocks react positively (like last year), so a positive impression so far is hindered by the ongoing auction of frequencies.

Given that participants in the auction of frequencies is not during the auction the auction to express, not come from any management information. Or one piece of information provided and so they do not know if the auction ends a week or eight months or later. Such uncertainty in investors 'reward' stagnant price around 320 CZK.The result of the auction is so important that the management of Telefónica CR nor could guidance on revenues this year.

Our pricing model allows for a greater drop in sales than we predicted in previous award. The main reason is to review the results of the estimates for this year, which is associated with weak economic growth of the Czech economy. Any admission of a new fourth operator is a factor which can be very difficult to quantify. We are entering a new operator, we expect, but we do not think it would be so aggressive, as is widely expected.

New awards shares of Telefónica Czech Republic is 343 CZK with HOLD recommendation from its original value of 416 CZK and recommendations accumulate. The decline reflected the factor of debt. Originally, we expected that Telefónica CR would be willing to pay higher dividend growth over time mainly due to debt financial difficulties of the parent company.The fact that the dividend has declined this year, we review the dividend policy. We are not considering already indebtedness due to the dividend payment, which has a negative impact on the resulting valuation.

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