Exercise1_17112015

OTE Outperform (from Outperform) Mkt. Price: 7.90

Telecommunications High Risk (from High Risk) Target Price: 10FTSE MI: 446.94

Equity Research | Update

Changes

Target price 10

of which DPS 0.05Previous 10.9

Total stock return 28.0%

Valuation 2014a 2015e 2016e 2017eP/E 14.4x 17.0x 11.8x 10.9x

P/E adj. (*) 12.7x 12.1x 11.6x 10.7x

P/BV 1.8x 1.7x 1.5x 1.3x

EV/Sales 1.4x 1.3x 1.2x 1.1x

EV/EBITDA 3.9x 4.0x 3.4x 3.1x

EV/EBIT 9.1x 10.4x 7.9x 6.6x

Dividend yield 1.0% 0.7% 1.1% 1.6%

FCF yield 7.9% 6.6% 11.6% 12.3%

Per share

EPS 0.55 0.46 0.67 0.73

EPS adj. (*) 0.62 0.65 0.68 0.74

EPS adj. old 0.62 0.68 0.83 0.94

DPS 0.08 0.05 0.08 0.13

BS data (€m)

Sh. Equity 2,122 2,322 2,608 2,901

Net debt 1,124 825 343 -96

P&L data (€m)

Revenues 3,918 3,830 3,802 3,808

EBITDA adj. (*) 1,422 1,375 1,338 1,346

EBIT adj. (*) 625 580 590 635

Net income adj. (*) 304 318 332 360

Trading data 1m 3m 6m 12m

Rel. Performance 17.8% 25.4% 13.4% 19.2%

Abs. Performance -3.7% 3.3% -13.7% -26%

H | L 52w 9.47 € 5.75 €

Market cap. (mn) 3872.2

Shares outstanding (m): 490

Free float (%, mn) 50% 1936

Avg. vol. Traded (52w): 1.07 mn

Index constituent & weight:

ASE (6.58%), FTSE LC (13.85%), FTSE MI(13.23%)(*) ex-voluntary program, ex-writedown, ex - one off gains

Antonis Diapoulis

Analyst

[email protected]

T +30 210 367 7532, +30 210 367 7513

Please refer to important disclosures in the Disclosure Appendix

3-Sep-15

Alpha Finance does and seeks to do business with companies covered in its research reports. Consequently, investors should be aware that the firm may

have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their

investment decision.

RIC: OTEr.AT, BBG: HTO GA

Rating - TP EPS

OTE S.A. is the leading incumbent telecom operator in Greece holding a series of fixed-line and wireless assets in

Greece, Romania and Albania. www.ote.gr

Resilient to upcoming recession Reiterate Outperform – New lower TP at €10/share

Could a stock be a constant outperformer in a stock market of an economy in a recession? Could it outperform its European peers during the same time? It seems

that OTE managed both during the past three months as on a relative basis to ASE it was up 25.2% and 7.25% vs. its European peers. The resilient

performance is attributed not only to the stable trends on an operating level but

also to the continuous successful efforts for stable operating profitability margins. We cannot disregard the weak economic conditions the company operates in, but given the solid performance up to now, we are confident that OTE could outperform the market again. Our new target price stands at €10/share (vs. €10.9

previously). Lower target price comes from adjusting for the new taxation, WACC (9.8%) and 2015-16 EPS down 30% and 18.5% respectively due to lower mobile

and fixed line sales forecasts.

New Estimates It is our belief that the Greek economy is up for a hard time in the next 6-12

months. OTE might be resilient on its cost base but operating performance will be

hit in terms of new subscribers (VDSL & TV) and mobile revenue generation. At the same time, foreign markets, especially Romania are also under high pressure.

Therefore, pressure in both fixed and mobile markets from regulation, competition, price sensitive consumers and abnormal economic conditions will not

be fully counterbalanced by cost cutting, investments in new technologies (4G & VDSL) and new products (pay TV). Additionally, OTE re-iterated its FY 15

guidance for adjusted FCF and CAPEX of €500mn each, on the assumption that the Greek economy returns to normal liquidity conditions soon. We believe that it

might be difficult to achieve the FCF figure given the above reasoning. Therefore

we have set group revenue and EBITDA CAGR 14/17e at –0.9% and -1.1% respectively (vs. AFe old -0.4% and +2.4% resp.). In fixed line, revenues &

EBITDA CAGR 14/17e stands at 0% & +0.1% respectively (vs. AFe old +0.5% and +3.2%). Group EBITDA margin estimate is lower in the range of 33-34%

(AFe old 36-37%) and FCF generation could reach a yield of 12-13% post 2015 (AFe old 14-15%).

1H 15 Snapshot

Results were broadly in line at all levels but NI. FCF was strong as it reached €450.1mn (+24.5% y-o-y) on an adjusted level. Sales and EBITDA reached

€1.89bn (-1% y-o-y, AFe €1.88bn) and €555.2mn (-17.6% y-o-y, AFe €554mn)

on the back of good trends in almost all operations and stable margins affected though by the one off VES costs. Unadjusted net income was down 70.6% y-o-y

to €36.8mn (vs. €54mn of AFe). It was remarkable that Greek fixed line EBITDA margin remained close to 40% as in the full year 2014. At the same time net debt

decreased to €1.05bn vs. €1.13bn in 1Q 15 vs. €1.124bn in FY 14.

6.5

7.5

8.5

9.5

10.5

11.5

12.5

500

1,500

2,500

3,500

4,500

5,500

6,500

A-14 O-14 N-14 J-15 F-15 A-15 M-15 J-15

52w performance

Vol traded (,000s shares) LH scale Adjusted price

mailto:[email protected]

Alpha Finance Equity Research Hellenic Telecommunications

Please read important disclosures at the end of the report. - 1 -

Rating: Outperform | High risk Share price performance OTE S.A.

Target price: 10 (%) 1m 6m 12m Current Price €7.9

of which DPS: 0.05 Rel 18% 13% 19% Sector: Telecommunications

Total stock return: 28.0% Abs -4% -14% -26%

Mkt cap (mn): 3872 Free Float: 50.0% OTE S.A. is the leading

Enterprise value 5697 H | L 52w 13.18 4.26 incumbent telecom operator

Headline figures 2012a 2013a 2014a 2015e 2016e 2017e 2018e in Greece holding a series of

P&L items (€mn) fixed-line and wireless assets

Revenues 4,680 4,054 3,918 3,830 3,802 3,808 3,815 in Greece, Romania, Bulgaria,

Ebitda 1,534 1,177 1,386 1,284 1,332 1,340 1,321 FYROM and Albania.

Ebitda adj. 1,657 1,455 1,422 1,375 1,338 1,346 1,327

Ebit 615 334 589 489 584 629 642

Pre tax income 609 314 396 381 483 543 575

Minorities 25 6 4 10 10 10 10 website: www.ote.gr

Net income 476 316 268 226 326 354 376

EPS (€) 0.97 0.64 0.55 0.46 0.67 0.73 0.77 all prices as of September 3th

EPS adj. 0.76 0.71 0.62 0.65 0.68 0.74 0.78

DPS (€) 0.00 0.00 0.08 0.05 0.08 0.13 0.12 Research analyst

No. of shares, weighted 490 490 488 488 488 488 488 Antonis Diapoulis

Balance sheet items (€mn) 2012a 2013a 2014a 2015e 2016e 2017e 2018e +30 210 367 7532

Fixed assets, net 3,914 3,279 3,103 2,913 2,686 2,489 2,319 [email protected]

Cash & equivalents 1,227 1,449 1,515 1,348 1,975 2,414 2,430

Current assets 2,381 2,512 2,494 2,368 2,954 3,394 3,412

Total assets 8,360 7,861 7,804 7,501 7,886 8,165 8,055

Equity 1,624 1,920 2,122 2,322 2,608 2,901 3,220

Minorities 390 375 376 376 376 376 376

Long term debt 2,635 2,557 2,173 1,517 2,317 1,492 1,892

Long term liabs 3,284 3,140 2,871 2,215 3,015 2,190 2,590

Short term debt 1 11 0 0 0 0 0

Current liabilities 3,062 2,425 2,435 2,587 1,887 2,699 1,870

Equity & liabilities 8,360 7,860 7,804 7,501 7,886 8,165 8,055

Cash flow items (€mn) 2011a 2013a 2014a 2015e 2016e 2017e 2018e

Gross cash flow 1,439 1,250 1,094 1,031 1,084 1,075 1,064

Δworking capital 272 120 119 -7 4 15 5

Operating cash flow 1,168 1,091 1,000 1,038 1,080 1,059 1,060

Capex 554 339 524 618 548 549 551

Free cash flow 1,319 929 424 335 532 510 508

Δdebt -833 -1,094 -318 -466 145 0 -426

Δequity 0 218 -15 0 0 0 0

Dividends 0 1 39 26 41 62 57

Dividends to mins 0 21 3 10 10 10 10

Cash 1,227 1,449 1,515 1,348 1,975 2,414 2,430

Y -o - Y change (%) 2012a 2013a 2014a 2015e 2016e 2017e 2018e

Revenues -7% -13% -3% -2% -1% 0% 0%

Ebitda -8% -23% 18% -7% 4% 1% -1%

Ebitda adj. -4% -12% -2% -3% -3% 1% -1%

Ebit 74% -46% 76% -17% 19% 8% 2%

Pre tax income 429% -48% 26% -4% 27% 12% 6%

Net income 298% -34% -15% -15% 44% 9% 6%

EPS 298% -34% -15% -15% 44% 9% 6%

EPS adj. 98% -7% -13% 5% 4% 8% 6%

Margins (%) 2012a 2013a 2014a 2015e 2016e 2017e 2018e

Ebitda 33% 29% 35% 34% 35% 35% 35%

Ebitda adj. 35% 36% 36% 36% 35% 35% 35%

Ebit 13% 8% 15% 13% 15% 17% 17%

Pre tax income 13% 8% 10% 10% 13% 14% 15%

Net income 10% 8% 7% 6% 9% 9% 10%

Net income adj. 8% 9% 8% 8% 9% 9% 10%

Ratios & valuation 2012a 2013a 2014a 2015e 2016e 2017e 2018e

P/E 8.1x 12.3x 14.4x 17.0x 11.8x 10.9x 10.3x

P/E adj. 10.3x 11.1x 12.7x 12.1x 11.6x 10.7x 10.1x

P/BV 2.4x 2.0x 1.8x 1.7x 1.5x 1.3x 1.2x

EV/Sales 1.5x 1.4x 1.4x 1.3x 1.2x 1.1x 1.0x

EV/EBITDA 4.6x 4.9x 3.9x 4.0x 3.4x 3.1x 2.8x

EV/EBITDA adj. 3.4x 3.9x 4.0x 4.1x 4.3x 4.2x 4.3x

EV/EBIT 11.5x 17.2x 9.1x 10.4x 7.9x 6.6x 5.8x

FCF Yield 18.6% 16.1% 7.9% 6.6% 11.6% 12.3% 13.7%

Dividend Yield 0.0% 0.0% 1.0% 0.7% 1.1% 1.6% 1.5%

Payout ratio 0% 0% 14% 11% 12% 17% 15%

Debt/equity 2.5x 1.5x 1.2x 0.9x 0.9x 0.8x 0.6x

Net debt/ebitda 1.8x 1.3x 0.8x 0.6x 0.3x -0.1x -0.4x

Interest covered 2.5x 1.3x 2.9x 4.1x 5.0x 6.0x 7.5x

RoE 24% 14% 11% 8% 11% 11% 10%

RoIC 9% 7% 9% 7% 8% 8% 8%

source: company data & Alpha Finance Research Estimates

(*) ex-voluntary program, ex-write-down, ex extra taxes



OTE Update in a ‘click’ – Unstable economic environment has no effect yet Update details

Model update: 2016 Target Price €10/share (vs. AFe old €10.9) – Re- iterate ‘Outperform’

Assumptions changed:

Summary: We revisited our model for OTE to incorporate the latest trends and adapt to the economic conditions that formed

after the capital controls/referendum events, the upcoming snap elections and the new bailout. OTE has shown remarkable

resilience during the last three months in terms of both financial and stock performance. Revenue erosion has been contained

and profitability margins continue to rise leading to good FCF generation. At the same time the stock has outperformed both the

Greek market and its European peers. On these grounds we re-iterated our outperform recommendation but on a lower target

price. Key assumption changes include WACC adjustment, tax rate adjustment for Greece (to 29% from 26% previously) and

weaker sales.

Current Trading: Current trading is affected by exogenous factors like the ones mentioned above. These factors have pushed

the market to lower levels making OTE shares to increase just 2.3% during the previous month (+22.8% outperformance to

ASE). In terms of multiples OTE trades at an EV/EBITDA 15e of 4.04x vs. median 7.1x of its EU peer group, implying a good

discount.

1. Cosmote: Downward adjustments to our mobile model point out to a revenues and EBITDA CAGR 14/17e of -1.6% and –2.7%

respectively (vs. AFe old -0.4% and +1.7% resp.). Our assumptions are influenced by increased revenue pressure on the back of

competition, new profitability margin preservation efforts, investment in new technologies (4G) and weak consumer sentiment in

Greece due to the new bailout recessionary terms.

2. Fixed Line: We have adjusted downwards our figures due to the economic conditions in Greece. Nevertheless we expect this

segment to be more resilient to the mobile segment. Revenues and EBITDA estimates point to a CAGR 14/17e 0% & +0.1%

respectively (vs. AFe old 0.5% and 3.2%), affected by persisting negative regulatory environment, Greek economic environment,

competitive and economic conditions which are counterbalanced by good cost cutting (target EBITDA margin at 35-37% vs. AFe

old 39-40%), investment in new technologies like VDSL and pay TV increased penetration.

3. Romtelecom: Downward adjustments to this segment. We expect revenue and EBITDA CARG 14/17eat -0.6% and -2.6%resp

(vs. AFe old -2.2% & +2.2%).

4. Debt/FCF/CAPEX/ Dividend: We have set net debt/EBITDA 15’ at 0.64x (AFe old 0.54x), with a 2015 FCF yield of 6.3% (AFe

old 7.2%). CAPEX/revenues 2015 at 15% (high due to spectrum costs).

Key Estimates

TP 16e: €10 Upside: 28% Greek Fixed Line: LT (2018) Broadband market share at 41.7%, fixed line market share 38.6%. Revenue/EBITDA CAGR 14/17e

0.0% & 0.1% resp. Cosmote: Greek Subscribers CAGR 14/17e -0.7% (vs. AFe old -0.6%. Mobile ARPU CAGR 14/17e -0.9%. Group

Revenues/EBITDA CAGR 14/17e -1.6% & -2.7% resp. (vs. AFe old -0.4% & 1.7% resp.) Romtelecom: Voice Telephony Lines CAGR 14/17e -3.0%. Revenues/EBITDA CAGR 14/17e -0.6% & -2.6% resp.

CAGR 14/17e: Revenues -0.9% (vs. AF old -0.4%), EBITDA -1.1%,( vs. AF old 2.4%, adjusted -1.8%), EPS 9.8% (adjusted 5.9%).

Latest Events OTE reported 1H 15 results: In line with AFe at all levels but NI | Revenues, EBITDA and Net income stood at

€1.89bn (-1% y-o-y, AFE €1.88bn) and €555.2mn (-17.6% y-o-y, AFe €554mn) and €37mn (-70% y-o-y, AFe €54mn) respectively. Adj. Free Cash flow at €450.1mn (+24.6% y-o-y).

Debt: Repurchased €70.6mn from the 4.625% notes due on May 20th 2016 leaving the outstanding principal amount at €629.5mn.

€0.08/share gross Dividend was paid on August 5th 2015 Implemented a VRS on May 22nd 2015 with the cost reaching €75mn Reiterated CAPEX guidance for €500mn and for adj. FCF €500, assuming that the Greek economy returns to normal

liquidity conditions soon.



Valuation – Sensitivity

2016e TP at €10/share

We perform a single DCF in order to value the company. Our assumptions for our

DCF model include a Rf and Rm of 8% and 5% respectively in order to grasp the

increased Greek country risk, a terminal growth of 1%, a beta of 1 and a long term

debt/equity ratio of c.0.7, which yield an average WACC of 9.8%. On top of that we

add the value of the real estate. Our valuation exercise yields a 2015 target price

of €10/share (+23% upside).

OTE Valuation – DCF

(mn eu) 2013 2014 2015 2016 2017 2018 2019 2020

Revenues 4054 3918 3830 3802 3808 3815 3767 3702

EBITDA 1177 1386 1284 1332 1340 1321 1281 1223

EBIT 334 589 489 584 629 642 658 667

EBIT * (1 - tax rate) (I) 227 457 303 405 422 430 441 447

CAPEX 339 524 618 548 549 551 546 539

Depreciation & Amortization 843 796 795 749 711 679 623 556

- (Capex - Depreciation) (II) -504 -272 -177 -201 -162 -128 -77 -17

- Change in WC (III) 120.00 119.30 -7.24 4.32 15.23 4.79 6.86 33.67

Reinvestment (II+III=IV) -384.00 -152.70 -184.34 -196.64 -146.29 -122.90 -69.77 16.31

Free Cash Flow (I-IV) 610.96 610.06 487.32 602.13 567.86 552.99 510.54 430.52

WAAC 10.0% 10.3% 9.7% 9.6% 9.5% 9.9% 9.9% 9.9%

Discounting Factor

100.0% 91.4% 83.1% 75.6% 68.8%

Discounted FCF 519 460 386 296

PV of Cash Flows 1661 + Residual Value 3355 Terminal Growth Rate 1%

Assumptions - Net Debt 343

Beta: 1, Rf: 8.0%, Rm: 5.0%

- Minorities 10 +Real Estate 193 Equity Value 4857 Shares (mn) 490 Dividend per Share (15e) 0.05 DCF per share 16e 10.0

Source: AFe, Bloomberg, company data

Sensitivity on WACC/Tg In order to grasp the sensitivity of our target price to changes in both our forecasts and

valuation assumptions we observe the fluctuations to our target price by adjusting WACC and

terminal growth. If the improvement of the Greek economy continues, then our WACC

estimate could further decrease implying a higher target price.

OTE WACC/Tg Sensitivity

WACC/Tg 0.0% 1.0% 2.0%

8.8% 10.2 11.2 12.4

9.8% 9.2 10.0 10.9

10.8% 8.4 9.0 9.7

Source: AFe



Assumptions Bear Base Bull Target Price 6.2 10.0 12.9

Group Revenue CAGR 14/17e -0.7% 1.6% 3.6% Group EBITDA CAGR 14/17e -7.1% -3.2% 2.3%

VDSL Subs CAGR 14/17e 45.7% 54.1% 61.2%

ARPU CAGR 14/17e -2.3% -2.3% -3.5% Pay TV

Subs CAGR 14/17e 5.6% 11.6% 19.2% ARPU CAGR 14/17e 2.7% 2.7% 1.4% Greek Mobile

Subs CAGR 14/17e -4.3% -0.5% 2.9% ARPU CAGR 14/17e -1.9% -0.7% 1.7%

EBITDA Margin (2016e) Group 30.6% 35.0% 37.5%

Greek Fixed line 31.0% 38.2% 41.3% Mobile 28.1% 32.1% 35.2%

Sensitivity on Greek

fixed/Mobile

We have also undertaken a more in depth sensitivity analysis to our model in order to

understand how our target price would adjust to reduction/increases of our subscriber and

ARPU assumptions. The table below summarizes our findings.



Forecast Changes

OTE Forecast Changes (€ mn) 2014a 2015e 2016e 2017e CAGR 14/17

old new old new old new old new

Revenues

Fixed line (OTE) 1512 1489 1507 1519 1487 1533 1510 0.5% 0.0%

Cosmote 1772 1697 1697 1731 1697 1751 1689 -0.4% -1.6%

Romtelecom 609 605 605 602 602 571 599 -2.2% -0.6%

Other 456 447 447 438 438 401 429 -4.2% -2.0%

(Intersegment) -431 -427 -427 -422 -422 -386 -418 -3.6% -1.0%

Total 3918 3812 3830 3868 3802 3869 3808 -0.4% -0.9%

% chng -3.3% -2.7% -2.3% 1.5% -0.7% 0.7% 0.2%

EBITDA

Fixed line (OTE) 586.4 593.7 511.9 633.5 568.1 644.4 587.8 3.2% 0.1%

Cosmote 582.5 584.8 550.3 588.2 544.5 613.5 537.1 1.7% -2.7%

Romtelecom 149.2 149.8 146.4 143.6 143.6 159.1 137.7 2.2% -2.6%

Other 67.5 75.1 75.1 76.2 76.2 77.4 77.4 4.7% 4.7%

(Intersegment) 0.0 0.0 0.0 0.0 0.0 -7.7 0.0 Total 1385.6 1403.4 1283.7 1441.6 1332.4 1486.7 1339.9 2.4% -1.1%

% chng 17.7% 1.3% -7.4% 2.7% 3.8% 2.6% 0.6%

EBITDA margin

Fixed line (OTE) 38.8% 39.9% 34.0% 41.7% 38.2% 42.0% 38.9% Cosmote 32.9% 34.5% 32.4% 34.0% 32.1% 35.0% 31.8% Romtelecom 24.5% 24.7% 24.2% 23.9% 23.9% 27.9% 23.0% Other 14.8% 16.8% 16.8% 17.4% 17.4% 19.3% 18.0% (Intersegment) n.a. n.a. n.a. n.a. n.a. n.a. n.a. Total 35.4% 36.8% 33.5% 37.3% 35.0% 38.4% 35.2%

Depreciation 796.4 794.9 795.0 748.8 748.6 739.1 710.7

EBIT 589.2 608.5 488.7 692.8 583.8 747.6 629.2 8.3% 2.2%

% chng 76.2% 3.3% -17.1% 13.8% 19.5% 11.1% 7.8% mgn 15.0% 16.0% 12.8% 17.9% 15.4% 19.3% 16.5%

EBITDA Adjusted 1421.7 1409.4 1375.2 1447.6 1338.4 1492.7 1345.9 1.6% -1.8%

% chng -2.3% -0.9% -3.3% 2.7% -2.7% 2.6% 0.6%

Pre tax income 395.5 477.3 380.9 573.9 483.5 604.3 543.1 15.2% 11.1%

% chng 26.0% 20.7% -3.7% 20.2% 26.9% 0.0% 0.0% mgn 10.1% 12.5% 9.9% 14.8% 12.7% 15.6% 14.3%

Taxes 123.9 143.2 144.7 164.1 147.7 172.2 179.2 eff tax rate 31.3% 30.0% 38.0% 28.6% 30.6% 28.5% 33.0% minorities 4.1 9.7 9.7 9.7 9.7 9.2 9.6

Net income 267.5 324.3 226.4 400.0 326.1 422.9 354.2 16.5% 9.8%

% chng -15.3% 21.2% -15.4% 23.3% 44.0% 9.1% 8.6% mgn 6.8% 8.5% 5.9% 10.3% 8.6% 10.9% 9.3%

Changes New vs. Old 2015e 2016e

Revenues 0.5% -1.7%

EBITDA -8.5% -7.6% EBIT -19.7% -15.7%

PBT -20.2% -15.7% Net Income -30.2% -18.5%

Source: AFe | company data



Financials

Profit & Loss Statement (€ mn) 2012a 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e

Revenues Fixed line (OTE) 1704 1557 1512 1507 1487 1510 1498 1476 1437

Cosmote 2431 1881 1772 1697 1697 1689 1714 1696 1678

Romtelecom 620 610 609 605 602 599 595 592 590

Other 462 448 456 447 438 429 421 412 404

(Intersegment) -536 -442 -431 -427 -422 -418 -414 -410 -406

Total 4680 4054 3918 3830 3802 3808 3815 3767 3702

% chng -7.1% -13.4% -3.3% -2.3% -0.7% 0.2% 0.2% -1.3% -1.7%

EBITDA Fixed line (OTE) 377 317 586 512 568 588 573 548 505

Cosmote 891 648 583 550 545 537 537 526 516

Romtelecom 166 147 149 146 144 138 132 127 122

Other 102 73 68 75 76 77 79 80 81

(Intersegment) -3 -8 0 0 0 0 0 0 0

Total 1534 1177 1386 1284 1332 1340 1321 1281 1223

% chng -7.8% -23.3% 17.7% -7.4% 3.8% 0.6% -1.4% -3.1% -4.5%

EBITDA margin Fixed line (OTE) 22% 20% 39% 34% 38% 39% 38% 37% 35%

Cosmote 37% 34% 33% 32% 32% 32% 31% 31% 31%

Romtelecom 27% 24% 24% 24% 24% 23% 22% 21% 21%

Other 22% 16% 15% 17% 17% 18% 19% 19% 20%

(Intersegment) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Total 33% 29% 35% 34% 35% 35% 35% 34% 33%

EBITDA Adjusted 1657 1455 1422 1375 1338 1346 1327 1287 1229

% chng -4.3% -12.2% -2.3% -3.3% -2.7% 0.6% -1.4% -3.0% -4.5%

%margin 35.4% 35.9% 36.3% 35.9% 35.2% 35.3% 34.8% 34.2% 33.2%

D&A 919 843 796 795 749 711 679 623 556

EBIT 615 334 589 489 584 629 642 658 667

% chng 74.5% -45.6% 76.2% -17.1% 19.5% 7.8% 2.0% 2.5% 1.4%

mgn 13.1% 8.3% 15.0% 12.8% 15.4% 16.5% 16.8% 17.5% 18.0%

Total other income/(expense) -6 -21 -194 -108 -100 -86 -67 -64 -62

Pre tax income 609.30 313.88 395.50 380.87 483.48 543.08 575.06 593.50 604.65

% chng 429.4% -48.5% 26.0% -3.7% 26.9% 0.0% 0.0% 0.0% 0.0%

mgn 13.0% 7.7% 10.1% 9.9% 12.7% 14.3% 15.1% 15.8% 16.3%

Taxes 113 101 89 145 148 179 190 196 200

eff tax rate 19% 32% 22% 38% 31% 33% 33% 33% 33%

minorities 25 6 4 10 10 10 10 10 9

Net income 476 316 268 226 326 354 376 388 396

% chng 298.0% -33.7% -15.3% -15.4% 44.0% 8.6% 6.1% 3.3% 1.9%

mgn 10.2% 7.8% 6.8% 5.9% 8.6% 9.3% 9.8% 10.3% 10.7%

EPS 0.97 0.64 0.55 0.46 0.67 0.73 0.77 0.80 0.81

% chng 298.0% -33.7% -14.9% -15.4% 44.0% 8.6% 6.1% 3.3% 1.9%

Source: company data & Alpha Finance Research Estimates



Balance Sheet (€ mn) 2012a 2013e 2014a 2015e 2016e 2017e 2018e 2019e 2020e

Cash 1227 1449 1515 1348 1975 2414 2430 2840 3186

Accounts receivable 0 0 0 0 0 0 0 0 0

Inventories 826 720 685 728 687 689 690 681 700

Deferred income taxes 111 97 88 86 85 85 86 85 83

Other current assets 0 0 0 0 0 0 0 0 0

Other current assets 217 245 207 207 207 207 207 207 207

Current assets 2381 2512 2494 2368 2954 3394 3412 3812 4176

PP&E, net 3914 3279 3103 2913 2686 2489 2319 2195 2126

Telecommunication licenses, net 448 475 575 674 770 863 954 1042 1128 Goodwill (consolidated subsidiaries), net 567 506 506 506 506 506 506 506 506

Participations 1 0 0 0 0 0 0 0 0

EDEKT-OTE & Auxiliary fund, net 117 0 0 0 0 0 0 0 0

Other non-current assets 67 78 93 93 93 93 93 93 93

Other non-current assets, net 505 507 568 483 413 355 307 266 231

Deferred income taxes 257 394 360 360 360 360 360 360 360

Loans & advances to employees 102 111 104 104 104 104 104 104 104

Available for sale marketable securities 0 0 0 0 0 0 0 0 0

Total L/T assets 5979 5349 5310 5133 4932 4771 4643 4566 4549

Assets classified as held for sale 0 0 0 0 0 0 0 0 0

Total assets 8360 7861 7804 7501 7886 8165 8055 8379 8725

Trade creditors, notes payable 742 924 998 1046 1001 987 984 967 951

S/T debt 1 11 0 0 0 0 0 0 0

Other S/T debt 0 0 0 0 0 0 0 0 0

Current portion of long term debt 1414 389 465 655 0 826 0 0 0

Taxes, duties 32 83 46 46 46 46 46 46 46

Dividends Payable 2 1 1 1 1 1 1 1 1

Reserve for voluntary program 151 238 143 57 57 57 57 57 57

Unearned/deferred revenue 175 147 143 143 143 143 143 143 143

Other S/T Liabilities 545 632 638 638 638 638 638 638 638

Total current liabilities 3062 2425 2435 2587 1887 2699 1870 1853 1837

L/T debt 2635 2557 2173 1517 2317 1492 1892 1892 1892

Reserves for staff retirement & youth 448 382 433 433 433 433 433 433 433

Reserve for voluntary program 0 0 0 0 0 0 0 0 0

Other L/T liabilities 116 134 204 204 204 204 204 204 204

Deferred tax liabilities 84 68 60 60 60 60 60 60 60

Total L/T liabilities 3284 3140 2871 2215 3015 2190 2590 2590 2590

Share capital & paid in surplus 1681 1899 1884 1884 1884 1884 1884 1884 1884

Treasury stock 0 -11 -15 -15 -15 -15 -15 -15 -15

Statutory reserve -3322 -3126 -3148 -3148 -3148 -3148 -3148 -3148 -3148

Reserves & retained earnings 3264 3158 3401 3601 3887 4180 4499 4839 5201

Equity 1624 1920 2122 2322 2608 2901 3220 3560 3922

Minority interests 390 375 376 376 376 376 376 376 376

Total Liabilities & shareholders' Equity 8360 7860 7804 7501 7886 8165 8055 8379 8725



Cash Flow Statement (€mn) 2012a 2013e 2014a 2015e 2016e 2017e 2018e 2019e 2020e

Net income 476 316 268 226 326 354 376 388 396

plus: items to reconcile net income 855 782 852 805 758 720 689 632 566

Depreciation 919 843 796 795 749 711 679 623 556

Minorities 25 6 4 10 10 10 10 10 9

provisions 136 -67 52 0 0 0 0 0 0

Other (incl. write downs) -225 0 0 0 0 0 0 0 0

non cash taxes 108 153 -26 0 0 0 0 0 0

Gross cash flow 1,439 1,250 1,094 1,031 1,084 1,075 1,064 1,020 961

minus: working capital needs 272 120 119 -7 4 15 5 7 34

chng in accounts receivable -103 247 169 43 -40 1 1 -9 19

chng in inventories -14 -14 -9 -2 -1 0 0 -1 -1

chng in other S/T assets 0 0 0 0 0 0 0 0 0

chng in trade payables -8 2 75 48 -45 -14 -3 -17 -16

chng in other S/T liabilities -26 111 -35 0 0 0 0 0 0

minus: chng in L/T assets -3 157 -25 0 0 0 0 0 0

plus: chng in L/T liabilities -2 117 0 0 0 0 0 0 0

Operating cash flow 1,168 1,091 1,000 1,038 1,080 1,059 1,060 1,014 928

minus: capital expenditures 554 339 524 618 548 549 551 546 539

minus: investments -380 -28 38 0 0 0 0 0 0

minus: other (incl. restructuring charges) -325 -149 13 86 0 0 0 0 0

Free cash flow 1,319 929 424 335 532 510 508 467 389

minus: dividends 0 1 39 26 41 62 57 48 33

minus: dividends to mins 0 21 3 10 10 10 10 10 9

plus: chng in debt -833 -1,094 -318 -466 145 0 -426 0 0

plus: chng in equity 0 218 -15 0 0 0 0 0 0

other 58 191 17 0 0 0 0 0 0

chng in cash position 544 222 65 -167 627 439 16 410 346

cash position 1,227 1,449 1,515 1,348 1,975 2,414 2,430 2,840 3,186

Alpha Finance Equity Research OTE

DISCLOSURE APPENDIX

ALPHA FINANCE INVESTMENT SERVICES S.A. (‘Alpha Finance’) Headquarters: 5, Merlin Street, GR – 106 71 Athens, www.alphafinance.gr T +30-210-367 7400, F +30-210-331 1193, [email protected] Ministry of Development, S.A. Registration Number: 19420/06/B/89/01,G.E.MI.1176701000 Regulated by the Hellenic Capital Market Commission, License No. 42/13.04.1989

Analyst Certification The research analyst(s) undersigned and responsible for the preparation of this report certify (-ies) that a) the views expressed in this report accurately

reflect their (his/her) personal views about any and all of the securities or issuers mentioned in this report and b) no part of the analyst’s compensation

was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Analysts receive compensation

based upon various factors, including the quality and accuracy of research, productivity, experience, individual reputation, competitive factors and feedback

from clients.

Company specific regulatory disclosures

Disclosure checklist for companies mentioned & other price data information

Reuters Rating Price Price date/time Disclosure

OTE OTEr.AT Outperform €7.99 Official close @ 3 September 2015 3,6 Source: Alpha Finance

1. Alpha Finance and/or its affiliate(s) has acted as manager/co-manager/adviser in the underwriting or placement of securities of this company within the

past 12 months 2. Alpha Finance and/or its affiliate(s) has received compensation for investment banking services from this company within the past 12 months

3. Alpha Finance makes a market in the securities of this company

4. Alpha Finance and its affiliate(s) owns five percent or more of the total share capital of this company

5. The company and its affiliate(s) owns five percent or more of the total share capital of Alpha Finance and its affiliates

6. Alpha Finance has sent the research report to the company prior to publication for factual verification

7. Following 6, Alpha Finance has changed the contents of the initially sent research report, with respect to: no change

8. Alpha Finance has received compensation from the company for the preparation of this research report

Major changes vs. previous research reports

Date of report Price on report date (€) TP (€) Rating Forward1 EPS (€)

10-3-2015 €9.14 €11 Outperform 0.66

Source: Alpha Finance | 1: next year’s EPS used from December onwards Ratings and target price history

Price chart for OTE Rating history for OTE

DATE Rating Share Price (€) Price Target (€)

11/05/2009 neutral 11.40 14.10

05/08/2009 neutral 11.00 13.35

09/11/2009 neutral 11.50 13.00

05/03/2010 neutral 9.38 10.00

12/05/2010 neutral 7.89 8.50

05/08/2010 neutral 6.50 7.50

05/11/2010 neutral 5.80 6.50

16/02/2011 neutral 7.35 7.10

04/03/2011 Outperform 7.50 8.50

11/05/2011 Outperform 7.00 8.50

09/08/2011 Outperform 4.15 6.60

17/11/2011 Outperform 3.30 6.00

02/03/2012 Outperform 2.30 4.60

17/05/2012 Outperform 1.61 4.00

16/08/2012 Outperform 2.25 4.50

15/11/2012 Outperform 3.70 5.30

05/03/2013 Outperform 5.89 8.20

05/10/2013 Outperform 7.22 8.20

17/02/2014 Neutral 12.25 13.00

17/03/2014 Outperform 12.74 15.60

20/08/2014 Outperform 10.20 14.80

17/11/2014 Outperform 8.80 11.90 11/02/2015 Outperform 9.14 11.00

04/09/2015 Outperform 7.99 10.00

http://www.alphafinance.gr/



Regulatory disclosures This report has been prepared by Alpha Finance Investment Services S.A. (‘Alpha Finance’), a wholly owned subsidiary of Alpha Bank A.E. Alpha Finance is

regulated by the Hellenic Capital Markets Commission (HCMC). Alpha Finance has in effect management policies to identify and confront potential conflicts

of interest that could arise in the research division of the company and/or its affiliates (“Chinese Walls”).

Valuation method We use DCF valuation methodology for OTE. Our assumptions for our DCF model include a Rf and Rm of 8% and 5% respectively, a terminal growth of

1%, a beta of 1 and a long term debt/equity ratio of c.0.7, which yield an average WACC of 9.8%. On top of that we add the value of the real estate.

Risk rating We rate OTE as high risk based on the qualitative/ quantitative assessment of risk we apply on the company (see definitions the following the biggest investment risks for the shares: a) the fast growth of alternative carriers in Greece and Romania b) problematic macroeconomic environment in the Balkan area, c) other companies establishing backbone networks, d) mobile substitution, e) sharp slowdown in the mobile markets, f) management continuity, g) fixed line restructuring, h) Greek macro environment, i) regulators stance, j) Debt refinancing.

Definitions of Fundamental and Risk Ratings and Allocations

RISK RATING Low (L) Medium (M) High (H) Relative to Horizon2 Coverage3 IB services4

FU

ND

AM

EN

TA

L

RA

TIN

G

Outperform O/P TRP1 > +5% TRP1 > +15% ASE Index Dec.’11 10/50 10.0%

Neutral N (5%) < TRP1 < +5% 16/50 0.0%

Underperform U/P TRP1 < (5%) TRP1 < (15%) 4/50 0.0%

Restricted (G) R(G) Alpha Finance belongs to the same group of companies 1/50 0.0%

Restricted (IB) R (IB) Alpha Finance is currently rendering investment banking services 0/50 0.0%

Under review UR/ Not rated NR No rating currently available 19/50 0.0%

Source: Alpha Finance | Data as of 31.12.10 | 1: Total Return Potential (=capital return + dividend yield) | 2: except otherwise stated | 3: Percentage of companies under coverage within this category as of 31.12.10 | 4: Percentage of companies within this rating category for which investment banking services were provided over the past 12 months, as of 31.12.10. In several occasions, subject to the analyst's view and/or due to volatility of the shares, the ratings applied may fall out of the brackets described in the table above. The Alpha Finance universe consists of 50 companies accounting as of 31.12.10 for 79.9% of total market value

Risk ratings explained We derive the overall risk rating for a stock by applying a 60% weight on quantitative and a 40% weight on qualitative factors. We use a scale from 1 to 3

to describe ‘low, ‘medium’ and ‘high’ risk respectively. We compute two different quantitative risks namely liquidity and volatility. We assign equal weights

to liquidity and volatility risks to arrive at a so-called trading or quantitative risk for the specific stock researched. Using a scale of 1-to-3 scale, each

analyst also assigns a qualitative risk that is entirely up to his/her discretion to determine. Following this, we calculated the combined risk of the specific

stock applying the weights mentioned earlier. All IPOs are classified ‘high risk’ for 12 months after their listing date.

Definitions of Risk Ratings

Quant factor Definition Brackets Risk rating

Liquidity Number of shares traded over the last 12 months as % of total shares outstanding

If less than or equal to 33% High If greater than 33% but less than or equal to 66% Medium If greater than 66% Low

Volatility

The standard deviation of daily changes during the last 12 months. Volatility is used as a statistical measure of dispersion and indicates the propensity of a specific equity to suffer large swings in price. The stock’s volatility is measured against the volatility of the ASE index

If equity volatility against the market’s is greater than 2 High If equity volatility against the market’s is greater than 1.5 but less than or equal to 2

Medium

If equity volatility against the market’s is less than or equal to 1.5

Low

Source: Alpha Finance | Data as of 31.12.10 | The quant factors are updated at the end of each calendar quarter

General disclaimer This report has been prepared by Alpha Finance.

This report by no means provides investment advice as to any financial instruments contained herein. We aim to express our value judgments as to

possible or existing investments, without any existing contractual obligation to our clients. We cannot assume any liability for any investments undertaken

by our clients, since these investments will be a product of their own free will. The information contained in this report has been taken from sources,

which we deem to be reliable. We do not represent that such information is accurate or complete and it should not be relied upon as such. All opinions

and estimates expressed herein constitute our judgment as of this date and are subject to change without notice. Past performance is not indicative of

future results. The opinions and recommendations herein do not take into account individual client circumstances, objectives or needs. This report is

published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial

instruments. © 2015 Alpha Finance. All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written

permission of Alpha Finance and Alpha Finance accepts no liability whatsoever for the actions of third parties in this respect.


Alpha Finance Investment Services S.A.

Member of the AE, CSE 5 Merlin street, 106 71 Athens Greece

T +30-210-367 7400 F +30-210-331 1193 [email protected] www.alphafinance.gr

Equities Research Manousos Stathoudakis, Director Antonis Diapoulis Angelos Chorafas Nikos Katsenos Katia Zahari [email protected] T +30-210-367 7545

Sales & Trading Spyros Malavazos, Director Equities Sales | Foreign Institutions Natasa Martseki, Director Vassilis Galleos Ioannis Batistakis Equities Sales & Trading | Institutions Kostas Tzimos Maria Vryoni Giota Kouli Chris Xikis Derivatives Sales & Trading Lefteris Syrrakos, Director Andreas Markogiannis Angelos Kostis Stavros Tsimpos Equities Trading | Retail Andreas Tzevelekos, Head Maria Saranti

Market Making | Equities & Derivatives Andreas Papanayotopoulos, Director Stelios Tzaras International Markets | Sales & Trading Andreas Papanayotopoulos, Director Giannis Giouremos George Sarris Sofia Giannakou

Equities Sales | Retail Pantelis Tsitos, Director Kostantinos Kostoulas, Deputy Director Leonidas Kyriakopoulos Stavroula Galani Lazaros Koutromanos Kleanthis Schinas

[email protected]


Exercise1_17112015

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