Her Eleftherias Kourtali
Citigroup gives a target price of 20 euros and a buy recommendation for the OTE share, seeing a rally over 36%, while it places the dividend yield at 4.5% and characterizes the Greek listed company as the best choice by the telecommunications sector in the eurozone .
As he states, OTE offers the best growth in the European telecommunications sector with the even lower valuation. It has the “weapons” for further growth of shareholders’ returns despite the higher investments in FttH (Fiber to the Home lines) and fully owns every part of its infrastructure. With the strongest balance sheet, it remains the best investment choice in a world of potentially higher bond yields and / or higher inflation, given its pricing power.
Citi distinguishes three very important points from its third quarter results and recent market developments: a) OTE’s growth potential is broad-based and accelerating, b) the benefits of recovery / digitization will be visible from 2022 but also c OTE may be needed to accelerate investment (especially in FttH).
Thus, the American bank increases its estimates for the development of FttH, assuming that OTE will accelerate by 250k / year compared to the current rate.
OTE generally has three options: a) use of financial partners, b) co-investment with other players in the market, but given OTE’s strong balance sheet and the production of free cash flows, it is more likely c) to fully finance the investment. The latter is the basic scenario of Citi.
The only option that can entice OTE to go off balance sheet, as it may have operational advantages, is b), ie the co-investment through the creation of a joint venture structure with other “players” to upgrade the FttC (Fiber To network The Cabin) in FttH for up to 2-2.4 million homes (or half the country). However, it is complicated and its timetable is crucial given the pressure from the government to invest in FttH, but it is a win-win for all parties.
Citi points out that OTE has very good growth prospects, with the “positive winds” continuing in the coming years as a) the market remains rational, b) there is a significant accumulation, and c) there are prospects from digitization projects and the abolition of special wearer. The latter will take effect in 2022, a clear sign that the government is taking a balanced approach to helping industry invest.