MTEL's shareholders decided to suspend discussion of some of the agenda items at yesterday's EGM due to compliance issues with regards to provisions of the new company law that came into force on July 1, 2006.
At the EGM, Thilo Kusch, the new CFO, announced that the Montengrin investigation has resulted in two additional contracts for investigation, bringing the total amount of the contracts under investigation to HUF 2bn, and the total legal bill as of end of September to HUF 3.1bn (from HUF 1.8bn as of end of June). The company's BoD is currently considering courses of action regarding the management conduct over the whole affair, although they failed to provide any visibility on when the investigation will be concluded.
Importantly, one of the changes made in the Articles of Association pertains to timing of dividend payment. Previously, the company had 21 days following approval to pay the dividends. At yesterday's EGM, the shareholders shortened the time required to pay the dividends to just 10 days after approval. This means that should the legal investigation be concluded prior to the General Meeting scheduled for November 15, the dividends could be approved the and paid in early December. However, note that the changes in the Articles of Association will first have to be registerd with the Court of Registry.
Our view: We believe that MTEL shares will continue to be weak until conclusion of the legal investigation and approval of 2005 accounts and dividends. We also see an increased probability that the CEO will be replaced following the additional legal issues that have come to light, and that investors' confidence in the company will continue to be compromised if he stays. Whilst the move to change the time required for dividend payment indicates that the company would like to remunerate shareholders as soon as possible, it provides little consolation given lack of timing visbility. The company has confirmed to us that it is willing to pay and extraordinary dividend in 2007 should the investigation prevent payment before the end of 2006. Therefore, whilst MTEL continues to be attractive based on valuation and operating fundamentals, we believe the shares will continue to be weak until legal resolution and dividend payments.