Netia’s 4Q and full year 2005 results came in weaker than expected. 4Q05 revenues came in at PLN 237m, some 4.8% below our forecast, and 4% below consensus. Although 4Q05 EBITDA declined 11.1% y/y, it came in broadly in-line with our expectation at PLN 72.4m. The negative surprise was in Netia’s revaluation of its deferred tax assets and subsequent booking of a PLN 19.1m tax charge, leading to a loss of PLN 11m in the quearter, versus our PLN 31m forecast. Additionally, the tax asset revaluation is a negative indicator of the company’s view of its future profitability. For the full year, revenues came in at PLN 908.6m, substantially below both our and consensus estimates of PLN 919.9m and 917.0m respectively. Whilst the company reports 5% y/y revenue growth, we estimate that like-for-like growth was actually closer to just 2%. The one-off tax charge pushed net profit down to PLN 59m, versus our PLN 101m estimate. Netia is also maintaining its dividend yield of 2.3% by raising dividends to PLN 0.13 in 2006.
Management is guiding for very low single digit revenue growth in 2006 as they have yet to roll-out future growth drivers. They are also guiding for EBITDA margin to fall below 30% in 2006, and capex to rise significantly as they execute on their WiMax business plan. Management maintains that they will return to double-digit revenue growth and EBITDA should bounce back to above 35% level in 2007 and 2008. However, they were unable to provide details on how this will be achieved, or even details of WiMax base station roll-out timetable.
In general, we are skeptical of the company’s guidance for 2007 and beyond and would prefer to wait for better visibility on the business plan and proposed execution. We are, however, adjusting our numbers according to guidance for this year and will be publishing our revised estimates shortly. In the meantime, we remain sellers of Netia.