Fair value of T-HT stock is 354 kuna

Analysts from the Hypo Alpe Adria Group have determined the fair value of T-HT’s stock at 354 kuna in their latest analysis of the company’s operations, maintaining their previous recommendation – buy.

While T-HT is expected to remain the market leader in the telecommunications services segment in the domestic market in the coming years, the company continues to face challenges in its efforts to improve overall revenue and operational profitability, according to analysts from the HAAB Economic Research Department. HAAB estimates that T-HT will achieve sales revenue of approximately 9.05 billion kuna this year, which is 210 million kuna more than last year.

They also estimate that T-HT could achieve EBIT of 2.44 billion kuna, or 80 million less than last year, and net profit of 2.23 billion kuna, or 244 million less than last year. This would result in a price-to-earnings (P/E multiplier) ratio of T-HT’s stock at 9.9 percent. In 2009, however, an increase in T-HT’s sales revenue to 9.31 billion kuna is expected, with EBIT of 2.43 billion kuna and net profit of 2.26 billion. Analysts at HAAB highlight two key issues that could significantly impact the price of T-HT’s stock in the medium term.

The first relates to the restructuring of the company’s sub-optimally balanced assets, which holds a massive cash position – in the first half of the year, it amounted to 4.3 billion kuna. They remind that the company reported it is considering three models to address the restructuring of its balance sheet – through the payment of an extraordinary dividend, new acquisitions, and the buyback of its own shares. The second issue concerns the risk of selling pressure on the stock due to the expiration of the lock-up period. Namely, in the next six to nine months, the lock-up period for employees of the company who purchased 4.2 percent of the shares from the state under favorable conditions will expire. Furthermore, 2.5 percent of the state stake in T-HT will be distributed as bonus shares to those investors who refrained from selling T-HT’s stock for one year from the IPO.

Using the discounted cash flow (DCF) method, which has a weight of 70 percent in HAAB’s evaluation model for T-HT in determining the fair stock price, analysts at HAAB have estimated the price of T-HT’s stock at 388 kuna. Furthermore, with a regular dividend payment of 29.56 kuna per share and a dividend yield of 9.0 percent, analysts at HAAB emphasize that this stock has confirmed its status as a high-dividend stock. They assume that T-HT will continue the practice of nearly 100 percent dividend payout given its strong cash generation capability. Therefore, using the dividend yield evaluation method, they have determined the price of T-HT’s stock at 294 kuna.

By comparing the multipliers with similar companies from Central and Eastern Europe, they have set the price of T-HT’s stock at 234 kuna, taking into account the lower relative valuations of telecommunications companies worldwide. With several modified assumptions in the DCF and dividend model, HAAB has lowered the fair price of T-HT’s stock in their latest analysis from the previous 412 to 354 kuna. Given the current price of this stock, which is below 270 kuna, they have maintained their previous buy recommendation. (H)