Beta Securities: Why we like OTE? – Target price 12,10 euro |

Beta Securities: Why we like OTE? – Target price 12,10 euro

16.09.2016 13:25


Despite strong Q2 profitability, robust EUR125m FCF, solid growth outlook and attractive valuation, OTE is down 13% w-o-w, driven by selling pressures ahead of EuroStoxx 600 rebalancing (as of today’s close). This recent stock de-rating offers excellent entry point, in our view.

Why we like OTE?

  • Compelling valuation, OTE trades at 3.4x its 2016e EV/EBITDA, c50% discount when screened vs its international peers. Moreover, valuation discounts vs peer group persist even at our TP
  • Strong growth momentum, looking at 2016e-18e reported group net profit of EUR197.7m (+30% y-o-y), EUR272.3m (+38%) and EUR300.9m (+11%)
  • Solid FCF generation ability (2016e-18e FCF yield of 9.7% to 12.7% on BETAe)
  • Robust balance sheet, 2016e net debt/EBITDA at 0.4x, down to 0.1x next year, vs 0.7x in 2015, leaving plenty of room for cash returns or extra dividends (not build in our model), acting as key catalyst.

DCF model

We value OTE using a 3-stage DCF model, WACC of 9.9% (Rf 6.0%, ERP 5.0%, COE 11.0%) and sector asset beta of 1.00.

Our DCF continues to return a TP of EUR12.1, implying a hefty 56% potential upside. We, thus, reiterate Overweight rating on OTE.

Kind regards,

Spiros Tsangalakis

Senior Equity Analyst

BETA Securities S.A.

29 Alexandras Ave.

GR – 11473

Athens, Greece

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