Netia will publish its 4Q and full year results on Monday, the 27th. We expect 4Q05 net profit to have dropped 32% y/y to PLN 31m, versus consensus estimate of PLN 29m. The large variance is driven by the tax credit and negative goodwill amortized that Netia booked in 2004. We expect 7.9% of revenue growth in 4Q05, to PLN 249.4, driven entirely by a 52% y/y growth in data revenues, and a massive 165% y/y rise in wholesale revenues. However, revenue growth in 4Q05 is likely to have been driven by low-margin services, and we therefore estimate a 14% dip in EBITDA compared to 4Q04, to PLN 69.7m.
For full year 2005, we estimate a 2.2% growth in EBITDA, on a 2.5% growth in total revenues to PLN 919.9m, versus consensus estimate of PLN 917.1m. Our revenue forecast is underpinned by our expectation of an 8.7% y/y decline in direct voice revenues , which still make-up over 54% of total revenues, on our estimated 11.6% y/y decline in calling charges. This is in-line with what other operators have been reporting, and we expect this trend to continue as tariffs remain under pressure and traffic continues to migrate to mobile or IP-based platforms. Note that we have also incorporated the new regulators’ statements regarding LLU acceleration and greater market competition by folding-in slower churn in PSTN lines (2% in 2006, versus 5% for incumbents) and continued growth in wholesale lines (10% in 2006) at Netia.
We estimate that 2005 net profit declined 36% y/y to PLN 101.7m, given the high base in 2004 from non-recurring gains. Additionally, Netia has started booking its share of losses from P4 in 3Q05, and we estimate that it will be booking some PLN 1m in losses from P4 for the full year. We remain concerned over prospects for Netia’s fundamentals, specifically, the lack of flexibility and future growth drivers. Whilst the share price has been driven by M&A speculation in the last four months, we expect focus to shift to P4’s prospects, and its roll-out timetable. However, we continue to note that Netia owns only 30% of the mobile venture, and we expect P4 to contribute losses at the bottom-line in the medium-term as it attempts to muscle into a well-served and penetrated market. We believe that the likelihood for a surprise in Netia’s numbers is skewed in the negative, and we maintain our Sell rating on the stock and our PLN 4.7 fair value estimate.