Polkomtel management presented business development plans for 2006. The newly appointed CEO, Mr. Bauc, said Polkomtel targets revenue growth rate above that of the market, estimated at 8%. Polkomtel aims to increase its number of customers to 11m by the end of 2006, above our expectation of 10m clients. The company wants to regain the number one position in terms of revenues in the next few years. However, Mr. Bauc indicated that profit margins would contract in 2006, as a side effect of increased competition, although earnings in absolute terms should not drop below last year’s levels. Polkomtel will keep capex unchanged from last year's level of PLN 1.1bn, with greater emphasis on UMTS roll-out, versus our expectation for a slight drop in capex.
We expect a slightly positive trading impact from the news, as both PKN Orlen and KGHM would benefit more from a potential increase in Polkomtel valuation, if it succeeds in its ambitious plans, despite a drop in earnings and dividends in the interim.
Meanwhile, the Polish government official voiced its support for plans for listing Polkomtel, a plan which was favoured by the previous cabinet as well. While the Polish shareholders recently signed an agreement on cooperation with regards to selling their combined majority stake of 75% in the future, they have not yet decided whether to list on the WSE, or sell their stake to Vodafone. Either way, we do not see it happening this year.
Following the purchase from TDC, which we expect to materialize soon, PKN Orlen and KGHM will increase their stakes in Polkomtel to 24.58% each, with the value of Polkomtel stakes amounting to PLN 9.8 per PKN Orlen share and PLN 21.0 per KGHM share based on the transaction price. We reiterate our Buy rating for PKN with PLN 67.1 fair value estimate. We reiterate our Hold rating for KGHM with PLN 69.2 fair value estimate.