What’s new? The rather rhetorical question we raised a month ago was answered today. Q4/FY 2022 results announced came in line with our estimates in EBITDA(L) terms, but FY 2023 projected cash flow and remuneration policy are weaker compared to 2022 and our own expectations. OTE expects cash flow to go down this year (from E600m in 2022) with shareholders pocketing E425m, or E75m less than 2022, via a E250m/E175m cash dividend/buy-back combination.
Strike #3 it is. In our research note on Jan 17 (‘’Strike No. 3?’’) we described rising interest rates as Strike #1; the lower payout and changed dividend/buyback mix as Strike #2; and intensifying competition from Nova/Wind as potentially Strike #3 for the valuation of OTE. Today, the Greek incumbent attributed its -E100m/-17% lower yoy cash flow guidance to (inter alia) higher tax and flat capex. But also said it ‘expects to operate in an intensely competitive environment’.

What’s new? We are concerned with Nova-Wind’s more-aggressive-than-expected commercial policy announced on Jan 11 and the potential ARPU/EBITDA impact on OTE. The dividend & share buyback for 2023 is not necessarily at risk thanks to OTE dividend-intended cash buffers. But 2023-2024 EBITDA could be, as we doubt OTE will let subscribers go. In the end, Nova’s zero margin/cash burning strategy could backfire, but the market damage will be done, nevertheless.
This time is different, or isn’t it? Wind has always been cheaper than OTE. What changes now is a) Nova and United group, owned by private equity BC Partners; b) the new tariffs are even cheaper than before and are backed up by an aggressive marketing campaign. As Greek residents, we confirm that Nova-Wind marketing ads are everywhere; c) Nova-Wind seems willing to sacrifice the entire EBITDA margin to add volume.

What’s new? OTE reported Q3 adjusted EBITDA(L) growth of +1.6% yoy, down from +7.2% in Q2 and +8.0% in Q1. The deterioration was not due to moderate sales growth in H2, as management had predicted back in Q2 results, as sales grew by +3.9% yoy compared to +3.7% in H1. It came mainly on a combination of lower margin sales (ICT, handsets) and higher costs (seasonal personnel provisions).
Cash flow guidance reiterated at E600m (reported), despite higher capex (+E20m to E640m) to support increased FTTH spending. Which demonstrates OTE cash flow management ability, in our view. Out of the E500m in annual remuneration to shareholders, E250m has already been paid in cash and E210m in buybacks. We will repeat our Q2 comment that, notwithstanding a reversal in working capital during Q4, OTE’s E600m cash flow can be reconciled only via lower cash vs. accounting taxes.
Conclusion: we fine tune our 2022-2024 adjusted EBITDA(L) estimates to account for the weaker fixed retail revenues (-4.5% yoy) reflecting the expiry of state subsidies (fast internet) and/or the migration from voice to data.

In this note we outline the investment summaries of all Greek names we cover. We start off with a few points on macro and politics and our OI rated names, highlighting any changes compared to our previous assessment in June 2022.

Inflation, inflation, inflation
Real GDP grew by +7.8% yoy in H1 reflecting strong domestic demand (+9.5% yoy) and rebounding tourism (beating record 2019), while the inflation rate ran +12% yoy in the 12 months to September, pushing nominal GDP even higher at +16.9% yoy. This is important because it dilutes the public debt/GDP ratio (from 199% in 2021 to 170% in 2023, IMF), without increasing the financing needs of the sovereign (1.5% GDP annual), as most of the sovereign debt is fixed at low rates (76% owed to official creditors), and it allows the government to spend both during the pandemic (20% of GDP) and the energy crisis (2% of GDP).

The catalysts for 2023 include GDP growth staying in positive territory, winning back investment grade and to avoid a political turmoil from scheduled elections. This is our base case scenario for Greece. However, we cannot escape our conservative disposition. Therefore, we keep a single OI rating among GR banks (NBG) while upgrading Bank of Cyprus to OI. We stick to our OIs on OPAP (dividend yield), PPC (renewables), Motor Oil (renewables) and Jumbo (valuation).
OTE looks more attractive below E16/share and the same goes for Hellenic Exchanges below E3/share, which we consider to be a proxy for the banks, assuming you can afford to invest in a such low market cap name. We urge readers to ignore any sirens singing ‘everything is a buy’ in Greece. We believe the day of reckoning is here and fundamentals play the key role. Our GR universe (x-banks) trades 6x EBITDA and 10x earnings 2023 while on a dividend yield of 5%. These multiples are cheaper than four months ago (6.7x EBITDA and 10.9x earnings) thanks -mainly- to the market de-rating.

What’s new? OTE reported Q2 sales up +2.7% and adjusted EBITDA(L) +7% yoy (margin at 39%), with Greece +5% yoy (margin at 42%) and Romania doubling EBITDA yoy (or +50% adjusted for one-offs). Strong mobile, higher TV and visitor roaming revenues (+80%, exceeding pre-pandemic levels). In its outlook OTE said it expects to continue to grow in H2 but at a more moderate pace. Management reiterated FY 2022 reported cash flow guidance at E600m (o/w E500m paid out).
BB fiber service sub additions stood out at 207k in the quarter (from 40k-60k in previous quarters) reflecting OTE’s initiative to double BB speeds for 750k eligible customers. Penetration of BB fiber jumped to 62% from 53% in Q1. FTTH became available to 40k more homes, with 17k more taking up the service, and penetration at 14% from 12% in Q1. FY 2022 target for 1.0m FTTH footprint remains.