Q1 IAS consolidated results, reported on Monday, April 30, were below our and market expectations (Reuters’ market consensus) at all levels. The bottom line after-tax profit of CZK 1.47 bil. was almost CZK 300 mil. (16%) below the market consensus. The shortfall is largely due to weaker-than-expected revenue growth and higher depreciation charges. The stock responded by losing some ground after the release. We continue to consider Cesky Telecom significantly undervalued, and do not change our long-term buy recommendation. The results released on Monday will not help the market sentiment towards Cesky Telecom, though we believe that global telecom valuations, general market sentiment and potentially privatization will remain far more important drivers of the stock price.
Cesky Telecom, consolidated, IAS
| CZK mil. | Q1 2001 | Q1 2000 | change |
| Sales | 14,215 | 13,704 | 3,7% |
| EBITDA | 6,783 | 6,878 | -1,4% |
| EBIT | 2,711 | 3,355 | -19,2% |
| Pretax income | 2,133 | 2,375 | -10,2% |
| Net income | 1,467 | 1,630 | -10,0% |
The reported 6% decline in fixed-line call revenues and a 30% increase in mobile revenues were largely in line with our forecast. Mobile revenues now represent 22% of total revenues, vs. 18% one year ago. For us, the most surprising on the revenue side was a 23% decline in revenues from other network operators, to CZK 1.08 bil. (vs. our forecast of CZK 1.5 bil.); within this item, revenues from international operators declined 43%, and revenues from other domestic operators (predominantly mobile) grew only 5%. Moreover, fixed-to-mobile traffic (in minutes) actually declined 7% y-to-y. It therefore seems that while the damage to CT from the Czech mobile growth (i.e. traffic shifting from CT’s fixed-line network to mobile operators’ networks) continued as expected, the benefit to CT of the mobile growth (through mobile-to-fixed and fixed-to-mobile traffic) was significantly weaker than we expected. Overall traffic volume grew 14% y-to-y to 3.09 bil. minutes, but Internet-generated traffic was the only segment with positive growth. As for the balance sheet, worth noting is that Cesky Telecom’s debt continued to decline in Q1 2001, partially due to positive free cash flow generation and partially due to an increase in payables.
(Ondřej Daťka)