Earnings Report /
Croatia

Hrvatski Telekom: Q1 20 – Normalised profitability remains stable

  • Mobile segment down as a result of Covid-19 lockdown and lower handset sales

  • EBITDA normalised for exceptional items and Evo TV transaction increased by 1%

  • We maintain our target price at HRK 217.00 per share

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
4 May 2020
Published byInterCapital

HT Group’s Q1 20 results saw a decrease in revenue of 2.3% as the drop in mobile (-3.5%) and fixed revenue (-5.7%) segments was not offset by the growth of system solutions segment (+HRK39mn). Even though both Croatian (-2.1%) and Montenegrin market (-3.8%) saw a fall in revenue, the trend in Montenegrin market reversed slightly on the mobile side as it increased 1.7% (HRK1mn), driven by a positive postpaid performance, which compensated for a decrease in prepaid and visitors. The mobile segment revenue suffered quiet substantially in Croatia, and it was down -4.1% (HRK29mn), as a result of the lockdown and lower sales of handsets, coupled with a decrease in revenue from prepaid customers (due to an overall decline in the prepaid market), fewer visitors due to regulatory changes and strong competition in the market. The number of postpaid customers in the company's Croatian business was up 3.0% with ARPU in the same period increasing by 3.2%, which was still not enough to offset the decline in revenue. This turn of event is not good news as we see the mobile segment as one of the most important drivers of revenue growth. We expect to see a further decrease in this segment driven by the impact of travel restrictions on roaming revenues. Meanwhile, the company's system solutions is a very volatile category and we cannot expect it to be driver of growth in the next quarter. The fixed revenue segment posted a stronger decline due to a change in regulation for wholesale prices, while the other fixed line was mainly driven by lower Optima contribution.

EBITDA (before exceptional items after leases) in FY 19 amounted to HRK721m (-5.1% yoy), but when we normalise it for Evo TV transaction that took place in Q1 19, EBITDA AL increased by 1%. EBITDA before exceptional items after leases was mainly due to lower net revenue and higher IFRS 16 depreciation, while EBITDA AL in HT Group in Croatia amounted to HRK572mn and decreased by 8.8% or HRK55mn. Crnogorski Telekom had a positive contribution and its EBITDA AL increased by HRK2mn to HRK48mn (+4.3%). Depreciation decreased slightly while net financial result improved 42% and exceptional items for redundancy amounted to HRK52mn (+7x). Therefore, net income decreased 21.6% yoy to HRK 149mn. From today’s conference call with management, we cannot specifically estimate the decrease in EBITDA from lost visitor revenue, but they pointed out that the company is aiming to reduce costs in order to mitigate the effects of the lockdown in the form of travel and entertainment, media and other costs.

Management scrapping guidance for 2020 and Q1 revenue below our expectations could point to a negative development compared to our estimates for 2020. But flat operating profitability in this quarter and announced cost optimisation measures during the pandemic provide some optimism. We will be closely watching the sector, but until the next quarter’s results, we keep our target price at HRK 217.00 per share.