Multiplay Adoption And Green Energy Will Drive Stronger Long Term Polish Telecom Earnings

Catalysts

About Cyfrowy Polsat

Cyfrowy Polsat is a leading Polish integrated telecom, media and green energy group offering multiplay connectivity, premium content and renewable power generation.

What are the underlying business or industry changes driving this perspective?

• Rapid adoption of the new multiplay offer, with over half of the customer base already on bundles and significant headroom to upsell additional services, supports sustained ARPU expansion and accelerates retail revenue growth and earnings.
• Strong and rising viewership across TV and leading online platforms, combined with stable high advertising market share, positions the group to monetize shifting media consumption habits and lift top line and media segment margins as one off sports costs normalize.
• Completion of the Drzezewo wind farm, which doubles installed wind capacity and ends the capital intensive renewables build out, sets the stage for structurally higher green energy EBITDA and stronger consolidated free cash flow as depreciation replaces growth CapEx.
• Expanding premium sports and entertainment rights, together with flexible OTT offerings like Polsat Box Go, deepen customer engagement and reduce churn, underpinning long term subscription revenue growth and operating leverage in the content portfolio.
• Falling interest rates and the absence of major new spectrum renewals after 2026 are expected to steadily lower financing costs, which would improve net profit conversion from EBITDA and support deleveraging and equity value accretion.

Assumptions

This narrative explores a more optimistic perspective on Cyfrowy Polsat compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Cyfrowy Polsat's revenue will grow by 3.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.7% today to 6.0% in 3 years time.
• The bullish analysts expect earnings to reach PLN 977.7 million (and earnings per share of PLN 2.04) by about December 2028, up from PLN 400.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as PLN524.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, down from 17.8x today. This future PE is lower than the current PE for the GB Telecom industry at 16.9x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.83%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistently low wholesale electricity prices, combined with management already flagging that reaching the original 2026 strategic EBITDA target in Green Energy will be challenging and that EBITDA is more likely to be around PLN 400 million instead of PLN 500 million, could structurally cap the profitability of the renewables portfolio and weigh on group EBITDA and earnings over the medium term.
• Content costs in the Media segment are rising due to long term commitments to premium sports rights such as Formula 1, Bundesliga, UEFA competitions and major volleyball events. If advertising demand in Poland remains only low single digit growth or turns weaker, the mismatch between content inflation and ad revenue could compress media margins and limit net profit growth.
• In the core telecom business, equipment sales are already under pressure as customers replace devices less frequently. At the same time, technical and network costs are set to rise through at least 2026 due to 5G rollout and higher wholesale access fees. Together with wage inflation, these pressures could offset ARPU gains from multiplay and constrain B2C and B2B segment EBITDA and free cash flow.
• Leverage remains elevated with net debt to EBITDA, including project financing, at just over 4 times and the group faces sizable, lumpy cash outflows for spectrum renewals such as the 900 megahertz band and long dated term loans on the Drzezewo wind farm at variable interest rates. If interest savings from rate cuts are slower than expected or working capital swings are adverse, net profit and free cash flow could fall short of bullish expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Cyfrowy Polsat is PLN15.4, which represents up to two standard deviations above the consensus price target of PLN13.03. This valuation is based on what can be assumed as the expectations of Cyfrowy Polsat's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of PLN15.4, and the most bearish reporting a price target of just PLN8.5.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be PLN16.2 billion, earnings will come to PLN977.7 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of PLN11.16, the analyst price target of PLN15.4 is 27.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.