Coverage of high-potential mid-market firms in Poland

Advisory article

Netia overpaying for TK Telecom

TAG'S: NETIA, Telecoms

Unofficial word that listed alt-net Netia may have bid as much as PLN 550 mln for the telecom assets of state railway firm PKP - up to PLN 150 mln more than analysts had hinted for PAP just one day prior - may have evoked only moderate notice from markets, but triggered unanimous outcry amongst analysts who reopened a debate over prior M&A valuations and even Netia`s factual ability to post the synergies it lays claim to. "It doesn`t make sense to buy at this price," DI BRE Securities chief analyst Michal Marczak told PAP. Marczak`s target price for Netia is one of the lowest on the market at PLN 5.7. The PLN 550 mln bid remains clearly in the realm of hearsay, found in the daily Gazeta Wyborcza quoting a portal telepolis.pl quoting a portal ISB. But hunger for news as the TK Telekom bidding deadline nears has put media and markets snapping at every signal. The daily Parkiet claimed to have a confirmed Netia bid only Monday. Analysts told PAP of likely fair value between PLN 400 and 420 mln and of likely rival bids from Hawe or GTS, amongst others. But the question of fair value and the question of how much is too much are not the same and locals differ when asked if Netia crossed any line. Fault lines in the debate mimic views dating back to 2011 when Netia bought rival fixed-line telecom Dialog and radio ISP Crowley Data at valuations exceeding its own. Espirito Santo analyst Konrad Ksiezopolski, in contrast to BRE`s Marczak, puts TK Telekom fair value down at PLN 400 mln, but defends the Netia 2011 acquisitions. Those valuations matched CEE alterco peers even if they exceeded Netia`s own. If Netia catches any wind in its sails or a take-over offer, watch for the PLN 7 per share mark, he argues. The crux of that argument can be dug out of the synergies story: how much Netia can take from Dialog and Crowley and, in turn, how much to expect from TK Telekom should a deal move forward. Netia management eyes synergies from Dialog and Crowley buys at some PLN 106 mln at the EBIT level in 2012-2013 or even PLN 130 mln. Some analysts hint at a threat of paper gains as Netia may have be tempted to book costs as capex. Locals have yet to forget a move in 2011 to capitalize router costs. And while local watchers call that booking in line with select industry standards, they also know that 2011 guidance was met on the move. While the PLN 100 mln target is a "realistic assumption," BZ WBK brokerage analyst Pawel Puchalski told PAP, he has put sums into his CAPEX forecast that management has not. Puchalski sees CAPEX at 15% of revenues, not the guided 11-12%. BRE`s Marczak, in turn, said he expects "some nominal synergy gains." TK Telekom forecasts PLN 12.7 mln in 2012 net profit against PLN 11.3 mln in 2011 and PLN 79.2 mln in EBITDA against PLN 73.9 mln figure in 2011, the company said in a press release Tuesday.

2012-03-27



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