Standard & Poor’s on Friday raised the outlook for Cesky Telecom’s foreign-currency liabilities from “negative” to “stable” in response to CT’s recent decision to terminate talks on the acquisition of the 49% Eurotel stake, and reiterated its “A-” rating for long-term foreign-currency liabilities.
The outlook for Cesky Telecom’s domestic-currency liabilities remains unchanged at “negative,” and the rating remains unchanged at “A”. Neutral news for the stock.
On Friday, Patria released a new Cesky Telecom report, in which we downgraded our key long-term recommendation from buy to accumulate, and kept our short-term recommendation unchanged at accumulate. At the current price (CZK 323), the stock is trading at a 13% discount to our fair value estimate of CZK 370 per share.
We are relatively optimistic on the stock’s short-term outlook, we believe the stock could benefit in the early stage of the privatization tender, as we expect interest from several European telcos. There is also a good chance of Cesky Telecom securing a substantial increase in monthly fees when the regulator decides on new limits for end-user prices.
In the longer term, we are less optimistic. We have rather low expectations concerning the price at which the government’s and TelSource’s stakes in CT can be sold. Moreover, Cesky Telecom’s business outlook for 2002 is not particularly appealing; we forecast only very modest growth in revenues and profits. If we are correct, interim results will be a drag on the stock rather than a catalyst, particularly if the market focuses on the fundamentals after privatization, as we expect. Finally, there is the long-term threat of a possible stock overhang if the government and TelSource do not succeed in selling their entire 78% stake.
(New Cesky Telecom report can be found Here. )
(Ondrej Datka)