Telekom Slovenije published their Q1 2021 results yesterday, showing -6% YoY decrease in sales, EBITDA decrease of -3% and a net profit of EUR 10m (-14%).

In Q1 2021 Telekom Slovenije posted sales in the amount of EUR 156.8m, marking a 6% YoY decrease. The Mobile services in end-customer market segment recorded a 7.1% YoY increase with sales amounting to 61.7m. The came primarily due to higher revenues from mobile merchandise. Note that the segment was able to achieve an increase in sales despite experiencing negative effects on revenues from roaming due to the ongoing pandemic and measures taken to tackle it. Sales in the Fixed-line telephone services on end-customer market segment fell -15.5% YoY to EUR 51.9m primarily due to lower sales of IT licences and due to a decline in revenues from traditional voice telephony, as the result of the falling number of traditional connections and their replacement with mobile and IP telephony. Meanwhile the wholesale market segment saw sales decreasing by -8.1% YoY to EUR 35.8m, primarily due to lower revenues from international voice services and the roaming of foreign users in Telekom Slovenije’s mobile networks. Additional services segment, which includes revenues from financial services, energy, eHealth services and insurance,posted flattish sales which amounted to EUR 1.9m (-0.4% YoY). Finally, other revenues and merchandise segment sales were down -20.3% to EUR 5.4m.

EBITDA was down 3% YoY, amounting to EUR 55.7m. The decrease was due to lower sales as operating expenses were down as well. When observing OPEX, the largest decrease was recorded by cost services which fell by 23% YoY as lower roaming revenue also resulted in lower costs of telecommunication services. Also, the costs of services of sub-contractors were lower (-63.7% YoY), primarily due to lower sales of IT licences. However, note that if one was to exclude one-off effects in 2020, EBITDA would be up 3% YoY.

Below the operating line, the Group’s net financial result remained flattish by declining -1% YoY. As a result of the abovementioned, Telekom Slovenije’s bottom line amounted to EUR 9.7m (-14.3%). If one excluded one-off effects in 2020, net profit would have been up 8% YoY.

Telekom Slovenije also released their dividend proposal yesterday, which amounted to EUR 4 per share. Note that when compared to yesterday’s closing price this gives a dividend yield of 7.2%. Meanwhile ex-date is set on 30 July 2021. To read more about Telekom Slovenije’s dividend proposal click here.

Telekom Slovenije Key Financials (EUR 000)

At the current share price, dividend yield is 7.7%.

The Association of Small Shareholders of Slovenia (MDS) sent a counterproposal regarding the profit distribution. To be specifc, the MDS proposes a dividend distributon of EUR 17 per share.

MDS states that in the convocation, the company and the Supervisory Board of Cinkarna Celje proposed a division of only EUR 11 per share, although the annual report for 2020 and the Q1 report of the company show that the company operates stably and above plan. At the same time the company has a surplus of cash as at the end of Q1 amounting to EUR 41.8m and which is 11% higher than at the end of 2020.

Thus, the MDS Proposes that the part of the distributable profit in the amount of EUR 13.3m is used for the payment of dividends in the gross value of EUR 17 per share. Such a dividend implies a yield of 7.7%.

As a reminder, GSM will take place on 15 June 2021.

For today, we decided to present you with a DuPont analysis of Croatian companies, a useful technique used to decompose the different drivers of ROE.

The DuPont analysis is a useful technique used to decompose the different drivers of ROE. This model allows stock analysts and investors to examine the profitability of a company using information from both the income statement as well as the balance sheet. This gives the analyst a thorough view of a company’s financial health and operating efficiency. Note that for this analysis we used Q1 2021 results (trailing 12m).

Return on Equity of Croatian Companies (%)

Speaking in broad terms the equation allows analysts to dissect a company, and to efficiently determine where the company is weak and where it is strong. This allows analysts to quickly know what areas of business to look at (inventory management, debt structure, margins) for more answers. However, the measure is still broad and is not a substitute for detailed analysis.

DuPont tells us that ROE is affected by three things:

• Operating efficiency, which is measured by profit margin
• Asset use efficiency, which is measured by total asset turnover
• Financial leverage, which is measured by the equity multiplier

For this we excluded three Tourist companies (ARNT, RIVP and MAIS) as they noted a TTM net loss. 3 out of 9 observed companies, recorded a double-digit ROE, with Ericsson Nikola Tesla leading the list (27.3%). Such a ROE came on the back of a solid asset turnover of 1.93 (the highest among the observed companies) and an equity multiplier of 2.68.

Optima Telekom and Atlantic Grupa comes next with a ROE of 11.1% each. Such a high ROE of Optima came almost exclusively from the equity multiplier of 59.9, by far the largest among all observed companies. As a reminder, the company has been operating with losses for quite some time which reduced it’s equity. To be specific, losses brought forward as of end Q1 stands at HRK -857.6m.

Atlantic Grupa, reported a profit margin of 6.4% (highest of all observed companies) and an asset turnover of 0.95. Such a ROE could be considered as quite high, considering that the Group operates with very little debt. To read more about indebtedness of Croatian companies click here.

On the flip side, Kraš observed the lowest ROE of 3.5%. Such a low ROE could be attributed mostly to a relatively low profit margin of 2.4% (the second lowest of the observed companies).