Telefonica Czech Republic AS tumbled to its lowest in eight years on speculation the arrival of new competitors will dent future earnings.
The country’s biggest phone company dropped 3.1 percent to 323.50 koruna at its Prague close, the lowest since October 2004. It was the worst performer in the PX index, which declined 0.6 percent today.
Investors are awaiting the results of a frequencies auction to be announced this month, in which Telefonica Czech Republic is competing against local branches of Vodafone Group Plc (VOD) and T-Mobile, and a potential fourth operator, PPF Mobile Services. New regulations have cut mobile-termination rates and prompted the unit of Spain’s Telefonica SA (TEF) to open its network to a virtual operator Bleskmobil last month.
“There is a strong concern that Telefonica Czech Republic will lose a significant part of its market share and new competition will cut calling rates and hence profits,” Josef Nemy, an analyst at Komercni Banka AS, said in an e-mail today. “Investors are bracing themselves for a declining dividend.”
Nemy said he expects the payout to drop to 35 koruna next year and 30 koruna in 2014 from 40 koruna shareholders received this year. He has a hold recommendation for the stock, with a 12-month price estimate of 370 koruna.
“I didn’t expect these risks to price in so quickly,” Nemy said in response to questions from Bloomberg News. “If profits really start declining because of new operators, I’ll probably reduce our target price.”
The stock has lost 18 percent since the end of September, headed for its worst quarter in a decade and cutting the 14-day relative strength index to 17 today. Readings below 30 suggest in technical analysis that the asset may be oversold and poised for a rebound.
“The decline is overdone,” Tomas Mencik, an analyst at Cyrrus brokerage in Brno, Czech Republic, said by phone today. Mencik has an accumulate recommendation for the stock, with a price estimate of 417 koruna.
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