Beginning today, Cesky Telecom stock trades ex-dividend; the dividend record date is June 27, and the gross dividend to be paid is CZK 57.5 per share.
Correspondingly, we set our ex-dividend target price at CZK 337 per share (vs. our cum-dividend target price of CZK 394-CZK 57.5 per share). Although there is a decent upside potential in the stock from a fundamental point of view, we maintain our accumulate recommendation. Share-overhang concerns will weigh on the stock after KPN sold its 6.5% stake in Cesky Telecom to Credit Suisse First Boston (at CZK 339 per share) earlier this month. The overhang fears mostly concern a possible similar action by Telsource (a 51/49 JV of KPN and Swisscom), which holds 27% of Cesky Telecom.
Separately, O. Felix, the chairman of Cesky Telecom’s board of directors, said the company could save as much as CZK 4 bil. over the next 3-4 years by taking advantage of synergies between Eurotel and Cesky Telecom after the remaining 49% stake in Eurotel, the leading domestic mobile operator, was purchased in early June (the transaction should be completed in Q4 2003). Also, a combined fixed-line and mobile-phone service is likely to be offered (Reuters).
Such are some of the reasons why the acquisition of the 49% stake was widely perceived as the superior strategic choice for the dominant fixed-line operator; the materialization of cost and product synergies (the mentioned cost savings are rather ambitious) should provide support for the stock price.
Separately, Cesky Telecom has launched a second bond issue under its bond program (3.5% bonds with maturity in 2008 in a total amount of CZK 6 bil., with an option to increase the aggregate nominal amount to CZK 9 bil. in the course of two years). Cesky Telecom thus continues refinancing its debt portfolio.
Cesky Telecom is also expected to take a euro-denominated syndicated loan in the autumn to finance the USD 1.05 bil. purchase of the 49% stake in Eurotel; the loan would reportedly be due in 2008-09.
Jiří Soustružník