Magyar Telekom To Report Higher Revenues, Profit Fall For Q3

One-off costs related to recently announced layoffs will burden the books in the fourth quarter and developments in the privatisation of Telekom Slovenije, in which MTel is one of the seven shorlisted bidders, are prone to move the share price of the incumbent telco.

Revenues of HUF 174.5 billion for Q3 may be considered positive, while the median figure means a 1% decline year on year. The “shock", however, should disappear once we realise that sales in the base period was boosted by a one-off item, and without this the Q3 2007 number would show a yr/yr rise of around 4%. (MTel implemented changes to its accounting policy changes in Q3 2006. 

Accounting of MTel's EDR (unified digital radio network) investments was different from the earlier practice in both Q3 and Q4. In the income statement, other mobile revenues and cost of telecom equipment sold included this practically one-off amount. EBITDA was not altered by it, while it dented the EBITDA margin. In Q3 this amounted to HUF 9.8 bn and reached HUF 8.2 bn in Q4.)

The July-September period is traditionally the strongest quarter every year for MTel, but even at an expected moderate growth both on the EBITDA and operating profit line, the group's net profit is seen falling by 6% yr/yr, due to larger tax burdens.

As one-off costs related to the recently announced layoffs will affect MTel's numbers only in Q4, analysts did not need to incorporate these into their projections.

Irrespective of how MTel's net profit will turn out, we do not expect heavy reaction in the share price, since the market is focusing mainly on developments in the Telekom Slovenije's sell-off and news about a potential cancelling of dividend. The market is concerned that MTel may not be able to pay dividend for one or two years if it were announced the winner in the Slovenian tender. Any management guidance on the subject can affect the share price."

Source: Portfolio Online Financial Journal