RBS Morgans now rates MTU as a buy target $2.00 and raises full year predictions.
Highlights:
- All indications are that the core business and acquisition integrations appears ahead of schedule. Guidance was reiterated and in our opinion remains conservative. We have upgraded our forecasts by 20-25% and retain our Buy given compelling fundamentals. -We have upgraded our forecast by ~3% in FY10 and 20%+ thereafter - Overall MTU?s 1H10 result was impressive and provides sound confidence that MTU?s guidance to double NPAT in FY10 is comfortably achievable - Following an upgrade to our forecasts we now value MTU at A$2.06 (previously A$1.71). Our valuation is based on an equally weighted DCF based valuation and PE compco. Our DCF based valuation has increased to A$2.28 (from A$1.76) and our PE based valuation has increased to A$1.85 (from A$1.66). In setting our PE valuation we retain our 20% discount to peers given MTU is a reseller and therefore does not own its own infrastructure.MTU?s key risks relate to supplier margin pressure. Historically resellers have experienced significant problems when suppliers have increased prices; resulting in significant disruptions to the business model and in some case the destruction of profitability. Given MTU?s diversity of earnings and suppliers we expect this risk is limited. We also note MTU typically has the ability to pass on pricing pressure to customers within six months.
IMO I think RBS discount for a non infrastucture owning Telco is dumb! MTU is managing the Telos it's buying service off by maintaining competitive tension e.g. between Telstra and Vodaphone. Not owning costly infrastructure which depreciates and needs to be replaced to keep up with latest technology deserves a 20% over valuation!
I have raised my target to $2.50 by June results.
Well done to Vaughn and the team....bring on the 10-12c minimum div and 14cents for 2011!
