Polish Strategy - PBG SA

Polish Strategy Cyfrowy Polsat July 2010NewsflowDateDescriptionFinancialsYear end Dec (PLNm) 2007 2008 2009 2010F 2011F 2012F26 August 2Q10 results5 November 3Q10 resultsSource: Company data, INGMajor shareholders (%)Polaris Finance 65.2Source: Company data, INGShare dataAvg daily volume (3-mth) 236,247Free float (%) 35.1Market cap (PLNm) 3,823.3Net debt (1F, PLNm) 230Enterprise value (1F, PLNm) 4,054Dividend yield (1F, %) 4.7Source: Company data, ING estimatesShare price performance242220181614127/09 9/09 11/09 1/10 3/10 5/10Source: INGPriceCompany profileWIG20 (rebased)Cyfrowy Polsat is the largest satellite TV platform inPoland, with a market share of 56% in contractsubscribers. Cyfrowy had 3.2m subscribers at the endof 2009. The platform sells satellite TV subscriptionsin three starting packages (Familijny, Mini and MiniMax), which generated 94% of its revenue in 2009. In1Q10, Cyfrowy launched a commercial wirelessbroadband service. Cyfrowy also offers an MVNOservice.RisksChanges to T&CA have thrown up a significantincrease in churn, and we expect the quarterly churnto 5.5% in 2Q10. We also see significant executionrisks in wireless broadband project related to a slowerthan expected increase in technology reach, a highlycompetitive wireless broadband market with tumblingdata transfer prices and a lack of company controlover licences or infrastructure. With 49% of operatingexpenses and a large part of capex linked to the USdollar and the euro, our earnings projections arehighly sensitive to foreign exchange assumptions.Income statementRevenues 797 1,098 1,266 1,517 1,717 1,901EBITDA 166 348 327 401 490 567EBIT 145 324 285 335 411 476Net interest (7) 3 3 (0.4) 1 2AssociatesOther pre-tax items 2 6 6 0 0 0Pre-tax profit 140 334 294 335 412 479Tax (27) (64) (56) (64) (78) (91)MinoritiesOther post-tax items 0 0 0 0 0 0Net profit 114 270 238 271 334 388Normalised net profit 114 270 238 271 334 388Balance sheetTangible fixed assets 97 126 171 258 332 400Intangible fixed assets 11 12 14 13 10 10Other non-current assets 55 63 156 175 208 239Cash & equivalents 151 246 99 26 84 162Other current assets 281 310 335 402 459 515Total assets 595 757 775 874 1,093 1,326Short-term debt 298 264 260 256 283 309Other current liabilities 102 142 154 182 204 223Long-term debt 134 46 0 0 0 0Other long-term liabilities 1 12 31 13 13 13Total equity 61 293 330 423 594 781Total liabilities & equity 595 757 775 874 1,093 1,326Net working capital 209 215 254 322 379 434Net debt (cash) 281 63 161 230 199 147Cash flowCash flow EBITDA 175 369 336 401 491 569Tax, interest & other 40 76 56 64 78 91Change in working capital (24) 19 17 (15) (9) (10)Net cash from op activities 107 320 297 322 403 469Capex (55) (56) (65) (138) (134) (141)Net acquisitions 0.6 0.1 (25) 0 0 0Net financing cash flow (5) (100) (48) (47) 0 0Dividends & minority distrib'n 0 (38) (201) (179) (163) (200)Net ch in cash & equivalents 41 96 (147) (73) 58 78FCF 65 277 232 184 269 328Performance & returnsRevenue growth (%) 65.0 37.8 15.3 19.8 13.2 10.7Normalised EPS growth (%) 83.3 82.4 -11.7 13.9 23.1 16.2Normalised EBITDA mgn (%) 20.9 31.7 25.9 26.5 28.5 29.8Normalised EBIT margin (%) 18.2 29.5 22.5 22.1 23.9 25.1ROACE (%) 38.0 59.2 47.8 52.8 52.8 48.4Reported ROE (%) -14,686 152.2 76.4 72.1 65.7 56.4Working capital as % of sales 26.2 19.5 20.1 21.2 22.1 22.8Net debt (cash)/EBITDA (x) 1.7 0.18 0.49 0.57 0.41 0.26EBITDA net interest cvg (x) 23.3 n/a n/a 994.9 n/a n/aValuationEV/revenue (x) 5.1 3.5 3.1 2.7 2.3 2.1EV/normalised EBITDA (x) 24.7 11.2 12.2 10.1 8.2 7.0EV/normalised EBIT (x) 28.2 12.0 14.0 12.1 9.8 8.3Normalised PER (x) 25.9 14.2 16.1 14.1 11.5 9.9Price/book (x) 61.2 13.0 11.6 9.0 6.4 4.9Dividend yield (%) 0.0 1.0 5.3 4.7 4.3 5.2FCF yield (%) 1.6 7.1 5.8 4.5 6.7 8.2Per share dataReported EPS (PLN) 0.551 1.01 0.887 1.01 1.24 1.45Normalised EPS (PLN) 0.551 1.01 0.887 1.01 1.24 1.45Dividend per share (PLN) 0.00 0.143 0.750 0.666 0.606 0.747Equity FCFPS (PLN) 0.251 0.986 0.867 0.686 1.00 1.22BV/share (PLN) 0.233 1.09 1.23 1.58 2.21 2.91Source: Company data, ING estimates89