On Friday, Ericsson NT received EUR 12 DPS counterproposal from OTP banka. At the share price before this, this would imply a DY of 5.45%.

Ericsson NT received a counterproposal from OTP banka, for and on behalf of the Erste Plavi mandatory pension fund B category, which holds 1.81% of the shares. According to the counterproposal, they proposed EUR 12 DPS to be paid out, which is double the initial proposal by Ericsson NT (EUR 6 DPS). At the share price before the counterproposal, this would imply a DY of 5.45%.

The ex-date is set for 19 June 2023, while the payment date is set for 11 July 2023. As an explanation for the counterproposal, OTP said that they don’t believe that the proposal maximizes the value for the existing shareholders, especially when taking into account the existing structure of the Company’s balance sheet.

This is further detailed in the following way: As of 31 March 2023, Ericsson NT has a high amount of cash in the bank and treasury, in the amount of EUR 55.6m. As a reminder, the initial dividend payment, EUR 6 DPS, would in the total amount to EUR 15.9m.

Next up, they noted that as of 31 March 2023, the Company has financial liabilities in the amount of EUR 3.32m, and the total current financial liabilities in the amount of EUR 2.31m. Total current assets amounted to EUR 109.9m, while the total current liabilities amounted to EUR 39.1m. This would imply a net positive working capital of EUR 70.9m and a current liquidity ratio of 2.81.

Finally, they noted that given the amount and the structure of the Company’s assets, total liabilities, and equity, in which the share of own capital and reserves amounts to more than 41.6%, the Company has low debt and the capital expenditures for future periods can be financed by cash flows realized in these periods, i.e. new debt that would also lead to the reduction of the average cost of capital for the Company itself. Furthermore, if the dividend payment was accepted, the share of own capital and reserves in the Company’s total equity would still amount to 33.9%, taking into account the Q1 2023 financial statements, which OTP notes they find acceptable given the Company’s expected profitable business in the future.

Because of all of these reasons, they find it justifiable to pay a higher amount of dividend as compared to the amount proposed by the Company’s Management Board.

Source: Ericsson NT, InterCapital Research

*Based on the counterproposal