The time has come for Poland's incumbent telecom operator to start to unwind prior cuts to DPS and share stable-to-rising cash flows with shareholders, analysts at Wood said in a somewhat polemical morning note to markets. The 2014 dividend offer will constitute a "test of good corporate governance" as the the drivers behind prior DPS cuts, two PLN 0.50 cuts that slashed DPS from a traditional PLN 1.5 floor to the latest PLN 0.50, have faded.
Of the price wars and LTE frequency costs that trimmed DPS by two thirds, Wood will hear no more. "We strongly believe that the price war in Poland is over and that the visibility of the operators has improved," Wood says. Orange went from being reluctant follower to current leader in low pricing and has the industry's highest marketing costs to boot. "Pricing and operational cash flow are in the hands of management."
LTE frequency payments, in turn, are not "a big enough excuse" to hold off on shareholder remuneration, Wood adds.
The upshot: underlying free cash flow should improve notably in 2014, leaving a "gap between the dividends paid and FCF generated likely to become so wide (2014E FCF at 100% of 2013 DPS) that it will be impossible not to increase dividends, in our view."
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