Yesterday just after the close of market, S&P announced that it has revised its outlook on Netia to negative from stable due to marked revenue and EBITDA deterioration. S&P maintains B+ corporate credit rating for now. The agency says "persistent meaningful declines in EBITDA could lead to operational cashflow underperformance or an impairment of Netia's liquidity. This in turn could lead to a downgrade".
Our view: This underscores our concerns regarding the deterioration in Netia's operating fundamentals. We believe losses for 2006 could be wider than market expects, and will continue until the beginning of 2008. Given our expectation for an acceleration in the deterioration in Netia's fundamentals, we believe it is only a matter of time before its corporate credit rating gets downgraded. We maintain our Sell recommendation and PLN 3.6 fair value.