"Magyar Telekom's Q2 report suggests the company may be experiencing more serious problems in the fixed-line Internet segment than what had been previously visible; the trend could possibly threaten 2008 profit targets.“While at T-Mobile Hungary mobile broadband has become the key growth driver fuelling value added service revenue growth, in the fixed line segment growth in internet revenues slowed down significantly and fixed line churn increased further in Q2," CEO Christopher Mattheisen said in a management commentary to the Q2 report.
The chief executive's cautious commentary is not surprising in light of the fact that Q2 saw a decline (!) in T-Com Hungary's fixed-line Interenet revenues for the first time in the company's history on strong competition from mobile Internet and cable service providers.
The performance of Magyar Telekom's foreign subsidiaries was likewise too weak to generate significant growth in the entire fixed-line division. Consolidated Internet service revenues grew only 6.7% in the first six months of 2008, which compares with 8.3% and 16.4% at Magyar Telekom's Czech and Polish industry peers, respectively. (The picture is actually even gloomier, considering the fact that Q2 alone saw only 4.4% growth.)
“In response to this industry dynamic, the T-Home rebranding starting this autumn will align our product portfolio with the integrated corporate structure, allowing us to leverage our full range of services," Mattheisen commented on the Q2 report.
Meanwhile, there is a steady influx of analyst comments in response to the earnings report. According to KBC's Pamela Antay, the management “stroke a rather cautious tone" during a conference call that followed the flash report yesterday.
In Antay's view, there is a threat that the company might fail to meet management targets (stagnating revenue, minor decline in EBITDA), as Magyar Telekom will have to spend more than expected on the fixed-line Internet segment in order to remain competitive with cable providers.
Antay will soon review her “Buy" rating and HUF 1,097 fair share price on the stock; in the meantime she is expecting the stock to remain under pressure.
Difficulties in the fixed-line Internet segment is likely to prompt the management to increase the marketing budget in Q3 and Q4, Credit Suisse's István Máté-Tóth claimed, however the analyst believes the EBITDA consensus may improve over the next few months.
Máté-Tóth said the management reconfirmed 2008 targets in the conference call, saying these may come under review in Q3."
Source: Portfolio Online Financial Journal
12.08.2008