Netia cuts its forecast for revenues from operational activity to 850 million to 870 million zlotys ($273.2 million), constituting a fall of 4.1%-6.3% from 2005, versus its original guidance of a "modest growth" for 2006. The company is also guiding for a 9%-10% y/y fall in sales in 2Q06.
The operator said doubts over sales of new products and lower overall tariffs for calls due to regulatory changes were weighing on its results.
Our view:
We expect negative trading impact from the news today. Although Netia has guided for a net loss in 2006 and 2007 on the back of lower margins (below 30% EBITDA margin versus over 38% for 2005) from initial investments in P4 and WiMax, the steep fall in revenues comes as a surprise. The regulatory changes have not been fully implemented in Poland, and have been widely expected to negatively impact the incimbent, TPSA, whilst benefitting alternative operators. As we have noted previously, we expect larger losses for P4 in 2006 and 2007 as it launches operations, which should also results in larger losses than the market has been anticipating for Netia. We reiterate our Sell recommendation on Netia based on challenging valuations, low visibility on returns from WiMax and P4, and high execution risk.