As most of the regional telecommunication companies have published their FY 2021 results, we decided to compare their current and historical fundamentals in order to see how they compare to each other. We also looked at how well the sector performed from before the pandemic, until the present day.
With the growth and expansion of the mobile networks, replacing the older fixed telephony networks (which was especially accelerated with the implementation of 5G/4G networks), we decided to see how well the regional telecom companies rode this wave, and how do they compare to each other. The graphs below show various KPI (Key Performance Indicators) of HT and the peer group we usually take for comparison. This group includes Telekom Slovenije, Magyar Telekom, Orange Polska, and A1 Telekom Austria.
Before we start, two things should be noted. Firstly, Telekom Slovenije has not yet published its FY 2021 results, so we will be using the TTM (Trailing Twelve Months) data in 2021 for it. Secondly, Telekom Austria’s results are based on consolidated information from the entire Group that encompasses markets in Austria, Bulgaria, Croatia, Belarus, Slovenia, Serbia, and North Macedonia. Therefore, it is so much bigger than other companies presented.
Starting with the top line, we have Telekom Austria leading the way, with a revenue of EUR 4.75bn, making it by far the largest telecom company on this list due to the aforementioned reasons. This revenue represents growth of 6.4% YoY, driven by the successful strategy execution and the monetization of its product and services portfolio. Next up, we have Orange Polska, which grew by 3.7%, driven by increases across most of its business segments, and amounted to EUR 2.62bn. Magyar Telekom follows them, with a revenue of EUR 1.82bn, an increase of 4%. At the same time, Hrvatski Telekom, the largest telecom company in Croatia, recorded a slight decrease of -0.87%, and amounted to EUR 961m, mainly due to the sale of Optima Telekom and deconsolidation from 1H 2021.
Revenues of regional telecom companies (EURm) (2017 – 2021)
Looking over to the EBITDA margins of these companies, most of them had similar levels of this margin, hoovering between 33% and 35%, with the only two outliers above 40% being Hrvatski Telekom, with an EBITDA margin of 43%, and Orange Polska, with an EBITDA margin of 41%. Orange Polska is also the main outlier in terms of change YoY, with an increase of 12 p.p. YoY, driven by strong EBITDA growth (which increased by 46.8% YoY). Orange Polska’s strong performance can be attributed to the growth of its core telecom services, and IT/IS segment, the fact that the base was lower in 2020 due to the COVID-related provisions, as well as the ongoing cost transformations with savings mainly coming from labour cost reduction.
EBITDA margin of regional telecom companies (%) (2017 – 2021)
From the side of profitability, the increase experienced by Orange Polska also had a big impact on its ROE, with them topping the list at 14.41% (an increase of 13.97 p.p.). Again, the improvement in Orange Polska’s bottom line can be attributed to better EBITDA, but also to the fact that it was significantly boosted by the gain of EUR 302m on the sale of a 50% stake in Światłowód Inwestycje. Following them, we have Telekom Austria, with an ROE of 14.3%, while the remaining companies all had ROEs below 10%.
ROE of regional telecom companies (%) (2017 – 2021)
Finally, taking a look at these companies from a valuation perspective, we can see that most of the companies are traded around the median EV/EBITDA of 3.80x, with the only outlier being Telekom Austria, with an EV/EBITDA of 4.58x. At the same time, the P/E ratios tell a different story, with several outliers both significantly above, and somewhat below the median of 11.12x. The largest outlier in this case of Hrvatski Telekom, with a P/E ratio of 24.47x. This can be attributed to the fact that HT holds a large cash position, and if we were to adjust the P/E ratio for this cash, we would get a P/E ratio of 19.4x, which is still above the median but not by as much. On the flip side, Orange Polska has a P/E ratio of 6.65x, followed by Magyar Telekom, with a P/E of 7.03x.
EV/EBITDA and P/E comparison between regional telecom companies
So, having in mind all of these metrics, how well did these companies, and the telecom sector perform since before the coronavirus pandemic, say, since 2019, til today? How resilient did these companies prove to be to the shock caused by the pandemic?
Performance of regional telecom companies (2019 – 2022, YoY) (%)
As can be seen from the graph, looking at the companies’ performance during 2019, 2020, and 2021 can give us some pretty good insights. Since the telecom industry is usually saturated with several big companies per country, expecting strong and fast expansion by themselves is not plausible. Rather, it is the innovation, improved service & pricing models which drive a lot of the expansion in the telecom sector. But this also means that there are only several noteworthy players per country, meaning that when one expands its market share, the others decline. That can partly explain the growth and decline in 2019. In 2020, most of the companies in the world experienced a decline due to the pandemic, and this wave did not surpass the telecom industry, but their decline was somewhat reduced. 2021 represented a year of recovery and growth, a trend that continues today.
In total, it could be said that in the longer time frame, telecom companies have proven quite resilient to short-term shocks, and can be looked at as “value retaining” companies. This is evidenced by the performance of the regional telecom companies from before 2019 to today. Most of the companies had a rather flat growth rate. However, there are clearly two outliers, Hrvatski Telekom and Orange Polska, with increases of 27% and 65%, respectively from the beginning of 2019 to today. This, however, does not take into account two other factors: Dividend payments and share buyback programs. Both of these factors are something that can bring even higher value to investors, on top of the share price increases.
Performance of regional telecom companies with dividends included (2019 – 2022, YoY) (%)
As can be seen from the graph, when dividends are included, it makes a significant difference, especially over a longer time period. The largest difference can be seen for HT, for which the return increased from 27% to over 50% in the entire period. Telekom Slovenije, whose share price increased by 0.9% without the dividends, grew by 26.6% if the dividends were included. Even companies that had their share price decrease in the period (-9.1%), gave a return of 5.3% if the dividends were included. So taking a look at these companies solely without the dividends included gives a distorted and a shallow picture of the share’s true performance. All of this can be good evidence that despite all the uncertainty, short-term shocks, and tough competition experienced in the telecom sector, solid returns can be gained over a longer time period.
The proposal is subject to approval by the GSM, to be held on 18 May 2022 for Imperial Riviera, and 19 May 2022 for Valamar Riviera.
According to the statement released by Valamar Riviera last week, Valamar Riviera’s Supervisory and Management Boards propose the distribution of profit for 2021. The total profit of HRK 304.61m would be transferred to retained profits. It should be noted that this profit is from Valamar Riviera as a Company, not as a consolidated entity (or Group).
Also, due to the fact that Valamar (as did the other tourism companies) received benefits and incentives related to the COVID-19 pandemic, they couldn’t by law approve the distribution of profit in the form of dividends in 2022. This marks the 3rd year in a row that Valamar Riviera did not pay out dividends to its shareholders. This proposal is subject to approval at the General Shareholders Meeting, which will be held on 19 May 2022.
At the same time, Valamar Riviera’s subsidiary, Imperial Riviera, also confirmed the convening of its General Shareholders Meeting, in which, the distribution of profit for the year would be discussed. As per the proposal of Imperial Riviera’s Supervisory and Management Boards, out of the net profit of HRK 15.67m achieved in 2021, HRK 783.3k will be transferred to the legal reserves, while HRK 14.88m would be transferred to the retained earnings.
Considering Imperial Riviera operates in the tourism industry like Valamar Riviera, and is a subsidiary of Valamar, the same law for the payment of dividends applies. The outcome for both companies is in line with our expectations, as we did not expect any dividend payment until 2023.
Valamar Riviera Dividend per Share (HRK) and Dividend Yield (%) (2015 – 2022)