Earnings up thanks to cost control - Cesky Telecom's earnings came in well ahead of our estimates and the consensus. EBITDA was 3.5% ahead of our estimate as the company drove costs down, although not enough to sustain the previous year's margins. The EBITDA margin contracted 150 bps y/y from 48.0% to 46.5%. However, depreciation was also down 13%, driving the bottom line further.
9M mobile subscribers grew by an impressive 8% y/y. This strong growth helped turn around mobile revenues. Given that the mobile growth is clearly attributable to subscriber growth, we are concerned that subscriber growth going forward will be hard to come by, and therefore mobile revenues are likely to decline. Also, MNP is to be introduced next year, and we believe Eurotel is the most vulnerable to the resulting higher churn. In the fixed business, CT is making headwind in broadband, which we view positively as it is likely the only remaining growth engine in the CT stable.
Importantly, the company gave no visibility with regard to dividend payments. We are expecting full dividend resumption in 2006, and for 2005 and 2004 profits to be distributed. CT has said it will propose a new dividend policy to the new board at the next AGM (towards the end of 1H06).
On balance, we do not see anything material in the results that would change our views or valuation.
In CZK m, IFRS 9M2005A 9M2004 % change Consensus 9M2005 Patria
Sales 45,178 46,528 -2.9% 45,170 45,146
EBITDA 21,008 22,491 -6.6% 20,590 20,292
EBIT 7,398 6,935 6.7% 6,750 6,669
Pre-tax income 6,895 6,414 7.5% - 6,111
Net Income 4,801 4,509 6.5% 4,260 4,194
EPS (CZK) 19.9 18.7 6.6% 17.6 17.4