TPSA top regional telecom pick
Telephone monopolist Telekomunikacja Polska (TPSA) remains the top stock pick among Central European telecom giants, at least according to a recent Deutsche Bank research report.
Issued Feb. 1, the report listed TPSA as Deutsche Bank's favorite regional telecom stock, maintaining the firm's "buy" recommendation. In contrast, Deutsche Bank maintained "market perform" ratings for the Czech Republic's Cesky Telecom (CT) and Hungary's Matav.
The report stated that TPSA is undervalued and offers the highest growth rate among regional telecom operators as well as those operating in the European Union (EU).
As a result, analysts at Deutsche Bank said they expected TPSA to hit a target price of zl. 37 a share this year. The stock was trading Thursday at zl. 33.50, up 18% from its opening price this year.
The Czech Republic's CT, on the other hand, offers the lowest growth rate in the region and will face stiff competition next year as the telecom market deregulates, according to the report.
Matav is almost fully valued and expensive based on 2000-2001 earnings projections, the report said. Deutsche Bank, however, said Matav is well positioned to challenge the competition and benefit from the growing telecom market in Hungary.
Overall, the report stated that industry consolidation and expansion into value-added services is driving telecom share prices.
In that context, Central European telecom companies could potentially be takeover targets, although a more likely scenario is that primarily state-owned firms such as TPSA will be further privatized. The government is slated to sell a 25-35% stake in TPSA to a strategic investor this year, after floating 15% on the Warsaw Stock Exchange (WSE) last year.
Another impetus spurring interest in the sector could be possible public offerings of telecom firms' internet divisions, the report said.
Speculation on TPSA's privatization process will likely drive the stock price up in the short term, the report said. Deutsche Bank indicated that the government's rescheduling of the deadline for placing offers for the 25-35% stake in TPSA from Feb. 11 to Feb. 25 confirms speculation that the tender has attracted more attention from large telecom operators and will likely increase the chances of the state getting a good price for its shares.
The government canceled TPSA's first tender offer last December when only one bidder, France Telecom, made an offer.
Deutsche Bank's report also stated that TPSA has shifted its strategy in the last few months by focusing on mobile phone operations, data transmission and value-added services.
For instance, TPSA recently announced a zl. 500 million ($121.95 million) investment in internet content and expects to expand its service.
