Earnings Report /

Hrvatski Telekom: FY 19: Operations in line; bottom line pressured by one-offs

    Tea Pevec
    Tea Pevec

    Head of Research

    19 February 2020
    Published byInterCapital

    2019 HT Group’s results show a decrease in revenue of 1.0% yoy as Q4 figures were basically flat (-0.2% yoy) and show a reversal of trend compared to previous quarter (-4.2% yoy). The mobile segment returned to growth in the last quarter (+0.1% yoy) and it was up 0.4% yoy on the level of FY 19. Revenue growth was further supported by the jump in system solutions of 44% yoy in Q4, which was up 10% yoy in FY 19. Revenue figures for 2019 are in line with our estimates while management expects revenue in 2020 to be stable-to-slightly-lower, which is also in line with our estimates. We expect these two segments to continue to be the main growth drivers in the following years. Even though falling trends in revenue were evidenced in both Croatian (-0.6%) and Montenegrin market (-5.2%), development of the mobile segment revenue looks positive. In the Croatian mobile business segment, the number of postpaid customers was up +4.2%, with ARPU in the same period increasing by 0.6%. Smartphone customers were at 70% and we expect this figure to grow in the next quarters, which will in turn drive mobile data usage and result in ARPU growth.

    EBITDA before exceptional items after leases amounted to HRK2.908mn in FY 19  (-4.1% YoY), which is in line with our estimates so we can conclude that operating profitability is as expected. EBITDA before exceptional items after leases decreased by HRK123mn, which was due to both HT Group in Croatia (HRK110mn or 3.9%) and Crnogorski Telekom (HRK14mn or 6.0%). Decrease in operating profitability in Croatia was mostly driven by decrease in revenue (-0.6% YoY), which was partially offset with higher operating income (+9.8% YoY) while adjusted operating expenses excluding exceptional items increased (+1.9%YoY). Stronger difference compared to our estimate is evidenced in the depreciation figure that amounted to HRK2,147mn (up 24.1% yoy) in FY 19 vs our estimate of HRK1.832mn. According to management from today’s conference call, depreciation figures includes certain one-offs that consist of the following: seasonal increase in amortisation of HRK50mn pertaining to other periods; increase in HRK20mn due to Evo-tv consolidation; increase of HRK50mn due to increase in right-of-way fees and undisclosed amount of value adjustments for Optima. Management was unable to reveal any details due to ongoing Optima sale process. Therefore, net income decreased 30.3% YoY to HRK740mn. 

    Management also published an outlook for 2020 and they expect EBITDA after leases in 2020 at 38%, which is slightly above our estimates. When looking at investments in 2020, management expects it to amount to HRK1.7bn, which is in line with our estimate of HRK1,681mn. Management guidance for 2020 and top line and operating profitability for 2019 are in line with our estimates, therefore, we keep our target price at HRK217.00 per share.