Over the past three years, telecom and media companies in the Central and Eastern European have exhibited stronger revenue growth, margin expansion and credit protection improvement compared to companies in the EU-15. One important contributor to these trends has been a quicker recovery from the recession in the CEE region relative to Western Europe.
“Strong regional economic recovery is fueling household demand for telecoms services, such as smartphones and mobile data, driving revenue and earnings growth, improving credit quality and attracting M&A interest,” says Alejandro Núñez, a vice president and senior analyst at Moody’s. “The pace of these improvements will eventually slow, but will continue for at least the next 18 months.”
The CEE telecom sector is less mature than the Western European telecoms sector with regard to service penetration, pricing and usage, which has also contributed to its comparatively higher revenue and earnings growth rates. CEE telecom markets have had more scope to expand their networks and increase the penetration of new services such as 4G mobile and Internet Protocol television (IPTV) services.
On the other hand, CEE telecom and media companies remain attractive targets. Growth dynamics in the regional market has led to M&A activity in which foreign buyers have acquired or bid for regional operators, especially in Poland. UPC Polska LLC, the Polish subsidiary of UPC Holding BV acquired Multimedia Polska in October 2016, to cite just one example. Moody’s expects this trend to continue, most likely in the form of in-market cable-to-mobile deals or foreign firms acquiring or merging with CEE operators.
A final conclusion of the report refers to the fact that declining foreign exchange risk should support future earnings stability. FX volatility and its impact on CEE telecoms’ earnings has diminished in the past two years, compared with continued volatility in other emerging markets. Over the past year, a number of CEE telecom and media companies have refinanced euro and U.S. dollar bonds with local currency denominated bank loans, which has also helped lower their foreign exchange risk.
