Telecom analysts optimistic despite Netia slowdown
Fixed-line telecom operator Netia announced last Tuesday its unaudited financial results for the first half of 2000, reporting total revenue of zl. 200 million ($46.5 million), a 107% increase from the same period in 1999 when the company's profit was zl. 96.8 million ($22.5 million).
The company also said that its EBITDA, or earnings before interest, taxes, depreciation and amortization, was zl. 13.1 million ($3 million) for the first half of 2000, an increase of 182% from negative zl. 16 million ($3.7 million) during the same period in 1999.
The company's losses amounted to zl. 278.5 million ($64.8 million) in the second quarter of 2000, a 4% increase compared to a net loss of zl. 268.4 million ($62.4 million) for the same period in 1999. The loss was due to "the cost of servicing Netia's debt and increased debt levels as well as depreciation of fixed assets and amortization of goodwill and licenses," the company said.
While some telecom analysts were disappointed with Netia's results, the financial news was not enough to make them change their recommendations.
Bob Creamer, a telecom analyst at Raiffeisen Capital & Investment Polska, called the results "marginally disappointing," citing a slowdown in earnings from the first quarter of 2000. Creamer said he has kept his "sell" recommendation for Netia shares, mainly due to the telecom's plans to place a bid for one of the five third-generation mobile phone licenses that the government will sell later this year. Although Netia previously said it would bid for a Universal Mobile Telecommunications System (UMTS) license, Creamer said he recently heard company officials express some uncertainty as to whether Netia would participate in the tender.
"Netia realized that the (costs) are enormous, and that UMTS is not that attractive anymore in Poland," Creamer said. The Polish government expects about $3 billion-$4 billion for the five operating permits, or $600 million-$800 million for each license. But, the costs of constructing a UMTS network and investing in third-generation equipment still remain unknown to the operators who plan to bid for the licenses, although they are expected to be astronomical. If Netia doesn't bid for the UMTS license, Creamer said, he would upgrade his recommendation.
Michal Marczak, a telecoms analyst at Dom Inwestycyjny BRE Banku, said Netia's financial results were not a letdown, but the number of new phone service subscribers was less than he expected. Netia's number of subscriber lines in service was 286,259 for the second quarter ended June 30, up from 193,607 during the same period in 1999. Most analysts, Marczak said, expected Netia to gain 100,000 customers during the first half of 2000. A possible reason was that the company directed its finances toward expanding its service in Warsaw and perhaps did not spend as much on marketing its service in other areas of Poland, he said. Jolanta Ciesielska, Netia's spokeswoman, could not be reached for comment.
Marczak said he is retaining his "buy" recommendation for Netia, which he has kept for the past several months. In addition, he said that Netia's participation in the UMTS tender would depend on the cost of licenses and whether Netia will bid jointly with only its strategic telecom partner, Telia of Sweden, or with a possible third consortium partner.
"If the licenses are cheap and only four are offered, it should increase Netia's valuation (if it buys one)," said Marczak. "If it has to pay o600 million-o800 million for one of five licenses, then it won't be very good business for Netia. If the license is too expensive, Netia will not bid."
