5G Rollout And Fiber Network Expansion Will Improve Future Connectivity And Customer Satisfaction

Key Takeaways

• Growth in customer base, ARPO, and IT services, alongside network monetization and 5G rollout, is driving revenue, profit, and EBITDA.
  
• Cost transformation efforts, including automation and green initiatives, aim to cut operating costs and boost net income and cash flow.
  
• Inflation, competition, and macro challenges impact Orange Polska's revenue growth, cost management, and strategic planning across telecom and IT segments.

Catalysts

Provides telecommunications services for individuals, businesses, and wholesale customers in Poland.

• Orange Polska is seeing strong simultaneous growth in both customer base and ARPO (Average Revenue Per User), particularly in the consumer segment, which will likely drive future revenue growth and contribute to higher profits.
  
• The expansion and improved utilization of their fiber network, along with successful monetization efforts, are expected to boost network monetization further and limit overbuild risk, impacting both revenue growth and net margins positively.
  
• The rollout of the 5G network on the C-band spectrum, covering 40% of Poland's population, and the renewal of the radio access network, set to be completed soon, will enhance connectivity quality, potentially increasing customer satisfaction and reducing churn, ultimately benefiting revenue growth and EBITDA.
  
• Efforts to rejuvenate growth in IT and Integrated Services (IT&IS), as seen with a quarter-over-quarter revenue increase, will likely support long-term growth in revenue and margins as digital transformation continues across Polish businesses.
  
• The company's focus on cost transformation and efficiency, including digital acceleration, robotic process automation, and green energy initiatives, will likely reduce operating costs and improve net income and cash flow sustainability in the long run.

Orange Polska Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Orange Polska's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 8.3% in 3 years time.
• Analysts expect earnings to reach PLN 1.2 billion (and earnings per share of PLN 0.89) by about April 2028, up from PLN 913.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as PLN1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, up from 12.3x today. This future PE is lower than the current PE for the GB Telecom industry at 16.6x.
• 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 8.62%, as per the Simply Wall St company report.

Orange Polska Future Earnings Per Share Growth

Risks

• The challenging macro environment in the enterprise segment may impact Orange Polska's ability to rejuvenate growth in IT&IS, affecting revenues from this segment.
  
• The headline revenue figures decreased year-over-year due to a drop in low-margin product lines, potentially impacting overall revenue growth.
  
• Inflationary pressures and growth of the minimum wage have driven costs upward, which may negatively impact net margins.
  
• Delays in spectrum distribution could lead to increased leverage and uncertainty about future costs, impacting financial planning and balance sheet management.
  
• Competition in convergence and fiber services, as well as potential future price wars, may exert pressure on pricing strategies and revenues from core telecom services.

Valuation

• The analysts have a consensus price target of PLN9.125 for Orange Polska based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of PLN10.4, and the most bearish reporting a price target of just PLN6.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN14.0 billion, earnings will come to PLN1.2 billion, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 8.6%.
• Given the current share price of PLN8.57, the analyst price target of PLN9.12 is 6.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.