Telefonica O2 CR 2Q2010 figures in line with expectation

Summary

Telefonica O2 CR (TEF O2) announced its IFRS consolidated 2Q2010 figures. The numbers itself are in-line or slightly above projections. The y/y decrease on OIBDA level is largely due to one-off item related to T-Mobile settlement that was booked in 2Q09 of around CZK 0.9bn. The company reiterated its guidance for OIBDA and CAPEX for 2010.

We assume that the results approved the expected stabilisation in customer consumption of mobile services (traffic) at lease in the 2Q. Overall we do not anticipate any market reaction as the stock is affected by the dividend (9.3% gross dividend yield) that will be traded with the stock till 3 September (T+3 settlement).

Financials

Total revenues in 2Q2010 declined 4.1% y/y to CZK 14.1bn (in line with exp. CZK 13.8bn). The y/y decline is caused by lower consumption (economy) and regulatory ruling (MTR cuts). On the other hand the q/q comparison shows some stabilisation in consumption within the mobile segment what we see as positive. The example is "Traffic“, which showed CZK 2.2bn (-9.3 % y/y and +6.7 % q/q) vs. exp. CZK 2.1bn. Total mobile services went down 5.8% vs. exp. -7.3%. Fixed lines went down 5.3% vs. exp -5.9%. The main difference is in "interconnection“ due to higher interconnection use.

The OIBDA slumped 17.2% y/y to CZK 5.9bn (in line with exp. CZK 5.8bn). The large y/y decline is caused by the absence of the positive one-off item linked to the T-Mobile settlement that was roughly CZK 0.9bn lowering OPEX in 2Q09. Based on that (T-Mobile settlement) the OPEX (without depreciation) went up 7.1% (exp +5.8%). The difference is linked to higher interconnection due to higher usage. The OIBDA margin went down 6.6 p.p. to 41.8% (in line)

EBIT was at CZK 2.9bn (-27% y/y), again in line with exp. CZK 2.9bn. The difference is narrower than by OIBDA due to higher than expected depreciation at CZK 3bn (-4.7% y/y) compared to exp. CZK 2.9bn. The EBIT margin stood at 20.1% vs. exp. 20.8% (lower projected revenues)

We were a bit surprised by low absolute corporate tax of CZK 491m or 17.3% effective tax rate compared to exp. 20% effective tax rate but the difference was caused by positive tax adjustment that was booked in 2Q2010. Lower taxes helped the net income to show CZK 2.34bn (-23.9%) vs. exp. CZK 2.27bn. That level of net income gives an annualised EPS of 29.1 or P/E of 14.8 times.

Recommendation

The company reiterated its guidance for net OIBDA full year decline of 5-9% and CAPEX. Giving the so far results we would thing that the guidance is still challenging but due to some stabilisation in customer consumption of mobile services we view this note less important than after 1Q2010.

The numbers itself are neutral and therefore we expect no market reaction for tomorrows trading. The title will be till 3 September affected by the fact that it is traded with the right to the CZK 40 gross dividend giving a solid 9.3% gross dividend yield.

cons. IFRS, CZK m

2Q2010

y/y

eAFT

eMarket

Revenues

14,060

-4.1%

13,821

13,814

OIBDA (EBITDA)

5,864

-17.2%

5,773

5,792

OIBDA margin

41.8%

-6.6 p.b.

41.8%

-

EBIT

2,890

-27.0%

2,873

2,892

Net Income

2,342

-23.9%

2,266

2,267

EPS (CZK, p.a.)

29.1

-23.9%

28.1

-

Source: Telefonica O2 CR and ATLANTIK FT