Quality at a (low) price
Hrvatski Telekom (HT) is a full service telecoms operator in Croatia, an EU country that benefits from strong tourism and is currently emerging from a six-year recession. HT shares have fallen 31% since the start of 2013, underperforming parent Deutsche Telekom (DE:DTEGn) (DT) and the MSCI European telecoms index by 53% and 62% respectively, partly because of a cut in the dividend payout ratio in 2013 from 100% to c 50%. HT is a well-run company with a modern IP-based network, dominant market positions and a cash-rich balance sheet with stabilising revenues. On a 2015e dividend yield of 5.9% and EV/EBITDA of 3.0x (a 36% discount to the sector), HT’s potential appears to be overlooked by the market.
Declining fixed voice a fact, but less of a burden
Stripping out the impact of the acquisition of wholesale operator Optima in 2014, HT’s revenues fell 2.0% y-o-y in 9M15 (9M14: -3.6% y-o-y), primarily due to a 13.3% decline in fixed-line revenues on line losses and lower ARPA. Mobile revenues also fell, but by only 2.7%, on consumers switching to cheaper packages. Fixed line revenues remain very vulnerable, but at now only 15.5% of the group total (vs cellular at 39.5%), the group should be able to stabilise revenues as their impact lessens.
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