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Last close As at 25/03/2023
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Market capitalisation
HUF204,866m
Research: TMT
4iG’s FY22 results reflect the changing profile of the group as it has transitioned via a series of acquisitions from a business focused on IT services in Hungary to a regional technology-infocommunications provider in Hungary and the West Balkans. The post year-end acquisition of Vodafone Hungary reshapes the business further, which when included results in telecoms making up 87% of revenue and 94% of EBITDA on an FY22 pro forma basis. The group now has all the building blocks in place to take advantage of digitalisation and telecoms convergence trends in its chosen markets.
4iG |
Regional ICT group positioned for growth |
FY22 results |
Telecoms |
7 March 2023 |
Share price performance
Business description
Next events
Analyst
4iG is a research client of Edison Investment Research Limited |
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4iG’s FY22 results reflect the changing profile of the group as it has transitioned via a series of acquisitions from a business focused on IT services in Hungary to a regional technology-infocommunications provider in Hungary and the West Balkans. The post year-end acquisition of Vodafone Hungary reshapes the business further, which when included results in telecoms making up 87% of revenue and 94% of EBITDA on an FY22 pro forma basis. The group now has all the building blocks in place to take advantage of digitalisation and telecoms convergence trends in its chosen markets.
Year end |
Revenue |
PBT |
EPS |
DPS* |
P/E |
Yield |
12/19 |
41.1 |
3.3 |
30.8 |
22.0 |
22.7 |
3.1 |
12/20 |
57.3 |
4.2 |
37.7 |
22.5 |
18.6 |
3.2 |
12/21 |
93.7 |
8.1 |
67.9 |
29.0 |
10.3 |
4.1 |
12/22 |
277.3 |
(18.4) |
(75.4) |
N/A |
N/A |
N/A |
Note: *Dividend usually announced at AGM, which this year is on 28 April.
FY22 reflects transition to wider ICT service provision
FY22 represented a record year for 4iG, with reported revenue 196% higher y-o-y and reported EBITDA 491% higher, reflecting acquisitions made in FY21 and FY22. On a pro forma basis, revenue declined 11% while EBITDA increased 2%, with the pro forma EBITDA margin increasing 3.3pp to 26%. Restructuring and weaker public sector IT demand weighed on revenue, but despite cost inflation the group managed to improve pro forma group margins through upselling, price increases and cost-cutting in the telecoms business. Acquisition accounting resulted in a loss at the operating profit level and around half of the loss at the net income level was from the combination of acquired amortisation and depreciation and related deferred tax.
Focus for FY23: Integration of Vodafone Hungary
The group has already made good progress merging the two Albanian telcos acquired in Q122 and is investing in 5G provision in its Montenegrin business. The company is partway through its 100-day plan to review the Vodafone Hungary business (acquisition closed 31 January), which should result in an integration plan that will cover consolidating infrastructure, reducing costs and up-selling and cross-selling services in Hungary. In the IT business, the Rheinmetall joint venture is set up from an operational point of view, with service delivery expected from Q223. After a three-year process of diversifying the group by product and geography and with its integration plans well underway, the group is now well positioned for growth.
Valuation: Factoring in recent acquisition
4iG has made substantial progress with its strategy to create a group with attractive (potentially 30%+) EBITDA margins, high recurring revenues, a leading domestic position in Hungary and an expanding regional footprint. With the Vodafone Hungary transaction now complete, there is scope for substantial synergies to be realised post integration, boosting EBITDA profitability.
Review of FY22 results
In the table below we summarise 4iG’s performance in Q422 and FY22.
Exhibit 1: Divisional performance, Q422 and FY22
HUF bn |
Q422 |
Q421 |
y-o-y |
FY22 |
FY21 |
y-o-y |
Revenue |
80.6 |
40.6 |
98% |
277.3 |
93.7 |
196% |
IT |
26.7 |
30.4 |
-12% |
78.4 |
81.4 |
-4% |
Telecoms |
53.9 |
10.2 |
N/A |
198.9 |
12.3 |
N/A |
Pro forma revenue |
81.0 |
100.8 |
-20% |
304.8 |
342.5 |
-11% |
IT |
26.7 |
30.4 |
-12% |
78.4 |
83.3 |
-6% |
Telecoms |
54.3 |
70.4 |
-23% |
226.4 |
259.2 |
-13% |
EBITDA |
16.9 |
8.7 |
94% |
72.0 |
12.2 |
490% |
IT |
3.9 |
3.8 |
1% |
7.2 |
8.6 |
-17% |
Telecoms |
15.1 |
4.9 |
N/A |
66.3 |
6.1 |
N/A |
Central costs |
(2.1) |
(0.1) |
N/A |
(1.4) |
(2.5) |
N/A |
EBITDA margin |
21.0% |
21.3% |
26.0% |
13.0% |
||
IT |
14.4% |
12.5% |
9.1% |
10.6% |
||
Telecoms |
28.0% |
48.3% |
33.3% |
49.5% |
||
Pro forma EBITDA |
17.0 |
25.0 |
-32% |
79.4 |
77.6 |
2% |
IT |
3.9 |
3.8 |
1% |
7.2 |
8.6 |
-17% |
Telecoms |
15.2 |
21.3 |
-28% |
73.7 |
71.6 |
3% |
Central costs |
(2.1) |
(0.1) |
N/A |
(1.4) |
(2.5) |
|
Pro forma EBITDA margin |
21.0% |
24.8% |
26.0% |
22.7% |
||
IT |
14.4% |
12.5% |
9.1% |
10.3% |
||
Telecoms |
28.1% |
30.2% |
32.5% |
27.6% |
||
Operating profit |
(10.7) |
5.4 |
N/A |
(3.5) |
7.4 |
N/A |
PBT |
(12.0) |
4.4 |
N/A |
(18.4) |
8.1 |
N/A |
PAT |
(13.2) |
3.7 |
N/A |
(21.0) |
6.6 |
N/A |
Minority interest |
1.1 |
0.0 |
N/A |
2.5 |
0.2 |
N/A |
Net income to shareholders |
(14.3) |
3.6 |
N/A |
(23.5) |
6.4 |
N/A |
Net debt/(cash) |
455.6 |
164.7 |
177% |
455.6 |
164.7 |
177% |
Source: 4iG
Group revenue increased 196% in FY22 reflecting the acquisitions made through the course of the year. On a pro forma basis, revenue declined 11%; we discuss the reasons for this in the divisional analysis below. EBITDA increased 2% y-o-y on a pro forma basis, with the pro forma EBITDA margin increasing by 3.3pp to 26.0%, helped by lower central costs and growth in the Telecoms margin. Due to the recognition of tangible and intangible assets from acquisitions, higher depreciation and amortisation (HUF75.6bn vs HUF4.8bn in FY21) resulted in an operating loss of HUF3.5bn for the year compared to a profit of HUF7.4bn in FY21. Net finance costs of HUF14.9bn reflected interest payable on the debt taken out to fund acquisitions partially offset by currency gains. The company noted that during FY22, HUF10.1bn of the HUF21.0bn loss after tax was due to acquisition-related depreciation and amortisation and related deferred tax.
Pro forma Telecom profitability up despite revenue decline
For FY22, the Telecom business saw a 13% pro forma revenue decline, mainly due to the discontinuation of the events management business in Antenna Hungária earlier in the year. Pro forma EBITDA increased 3% y-o-y with the margin expanding by 4.9pp to 32.5%. The company managed to offset the windfall tax and inflationary increases in wages and other operating costs through price rises, cost-cutting, ARPU increases from the pre-paid to post-paid migration strategy and increased adoption of fixed-mobile tariff packages. The company also saw a one-off benefit from constructing and operating the telecoms and IT infrastructure for the FINA World Aquatics Championships broadcast in the summer.
In Albania, the merger of One Telecommunications and ALBtelecom to create One Albania was completed, with a new leadership team in place. In Montenegro, the business acquired spectrum for 5G (2x10MHz bands at 700MHz and 140MHz at 3.6GHz) at a cost of nearly €3m/HUF1.1bn.
IT business maintains its leadership position in Hungary
The IT business saw typical seasonality in Q4, with Q422 revenue of HUF26.7bn 44% higher than Q322 revenue. As previously discussed, the business saw lower demand from the public sector but managed to offset some of this effect by expanding its sales channels. FY22 revenue declined 4% yoy or 6% on a pro forma basis. Pro forma EBITDA declined 17% y-o-y due to a combination of lower revenues and the effect of inflation on the cost base.
The division was restructured during the year to better serve the group’s telecom subsidiaries. The joint venture with Rheinmetall, R4, is fully operational, with its own HR, IT marketing and back-office teams, and services are expected to be delivered from Q223.
Vodafone Hungary acquisition to reshape the business
The company provided pro forma normalised FY22 data showing how the acquisition of Vodafone Hungary would have contributed to group financials if it had been acquired on 1 January 2022. For illustrative purposes, the Vodafone net debt figure includes the loan taken out by Antenna Hungária to acquire its 51% stake in the business as well as estimated lease liabilities. Net debt/normalised pro forma EBITDA was 5.5x for 4iG on a standalone basis, 4.4x for Vodafone Hungary and 4.9x on a combined basis. Normalised pro forma EBITDA for 4iG adjusts for acquisition and restructuring costs of HUF2.3bn and the windfall tax of HUF1.1bn.
|
Exhibit 2: Pro forma data for FY22 |
|
|
Source: 4iG |
The deal nearly doubles revenue and more than doubles EBITDA on a pro forma basis, with Vodafone Hungary generating an EBITDA margin of 35% compared to 32.5% for 4iG’s telecom business and 26.0% for the 4iG group.
The company has a 100-day plan in place to review the acquired business and will use this to guide the integration process, including consolidation of infrastructure. The focus will then be on cross-selling and up-selling telecom services in Hungary. A rebrand is currently under consideration.
While clearly management is focused on integrating this large deal as well as the other acquisitions made through the course of FY22, it still has the appetite for further M&A if targets meet its criteria, for example strong revenue growth and cost synergy potential.
Outlook for FY23
The company did not provide specific guidance for FY23 but pointed to FY22 pro forma data as a good starting point, while noting that this does not include the benefit of any synergies. In terms of capex, the company noted that its spending would be broadly in line with other telcos in terms of capex/sales.
Exhibit 3: Financial summary
HUFm |
2018 |
2019 |
2020 |
2021* |
2022 |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
14,007 |
41,129 |
57,300 |
93,653 |
277,315 |
Cost of Sales |
(8,938) |
(30,126) |
(41,372) |
(59,090) |
(101,764) |
||
Gross Profit |
5,070 |
11,003 |
15,928 |
34,563 |
175,552 |
||
EBITDA |
|
|
842 |
4,075 |
5,047 |
12,185 |
72,022 |
Normalised operating profit |
|
|
240 |
3,332 |
4,211 |
7,365 |
(3,532) |
Amortisation of acquired intangibles |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
240 |
3,332 |
4,211 |
7,365 |
(3,532) |
||
Net Interest |
(21) |
(18) |
(36) |
743 |
(14,894) |
||
Profit Before Tax (norm) |
|
|
219 |
3,314 |
4,175 |
8,108 |
(18,426) |
Profit Before Tax (reported) |
|
|
219 |
3,314 |
4,175 |
8,108 |
(18,426) |
Reported tax |
(117) |
(488) |
(736) |
(1,519) |
(2,534) |
||
Profit After Tax (norm) |
102 |
2,827 |
3,439 |
6,589 |
(20,960) |
||
Profit After Tax (reported) |
102 |
2,827 |
3,439 |
6,589 |
(20,960) |
||
Minority interests |
0 |
66 |
(46) |
(186) |
(2,516) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
102 |
2,893 |
3,393 |
6,403 |
(23,476) |
||
Net income (reported) |
102 |
2,893 |
3,393 |
6,403 |
(23,476) |
||
Basic average number of shares outstanding (m) |
91.6 |
91.7 |
91.3 |
96.0 |
275.9 |
||
EPS - basic normalised (HUF) |
|
|
1.11 |
30.82 |
37.68 |
68.66 |
(75.97) |
EPS - diluted normalised (HUF) |
|
|
1.08 |
30.07 |
36.58 |
67.64 |
(75.97) |
EPS - basic reported (HUF) |
|
|
1.11 |
30.82 |
37.68 |
67.90 |
(75.40) |
Dividend (HUF) |
0.00 |
22.00 |
22.49 |
29.00 |
N/A |
||
Revenue growth (%) |
(17.2) |
193.6 |
39.3 |
63.4 |
196.1 |
||
Gross Margin (%) |
36.2 |
26.8 |
27.8 |
36.9 |
63.3 |
||
EBITDA Margin (%) |
6.0 |
9.9 |
8.8 |
13.0 |
26.0 |
||
Normalised Operating Margin |
1.7 |
8.1 |
7.3 |
7.9 |
(1.3) |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
1,571 |
1,948 |
3,989 |
187,615 |
750,907 |
Intangible Assets |
1,221 |
890 |
2,043 |
124,491 |
280,340 |
||
Tangible Assets |
140 |
322 |
777 |
43,374 |
303,378 |
||
Lease rights |
0 |
636 |
966 |
19,117 |
38,171 |
||
Investments & other |
210 |
101 |
203 |
634 |
129,018 |
||
Current Assets |
|
|
6,824 |
22,161 |
33,874 |
315,678 |
194,099 |
Stocks |
242 |
523 |
3,360 |
2,300 |
9,857 |
||
Debtors |
4,306 |
12,892 |
17,494 |
35,798 |
59,739 |
||
Cash & cash equivalents |
176 |
6,238 |
7,205 |
266,547 |
45,832 |
||
Other |
2,101 |
2,508 |
5,815 |
11,032 |
78,671 |
||
Current Liabilities |
|
|
(5,657) |
(18,225) |
(29,117) |
(58,924) |
(147,637) |
Creditors |
(3,894) |
(16,361) |
(25,628) |
(55,160) |
(130,777) |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
||
Short term borrowings |
(1,758) |
(1,500) |
(3,019) |
(0) |
(7,624) |
||
Other (including finance lease liabilities) |
(5) |
(364) |
(470) |
(3,764) |
(9,236) |
||
Long Term Liabilities |
|
|
(18) |
(392) |
(1,067) |
(426,822) |
(495,889) |
Long term borrowings |
0 |
0 |
0 |
(407,739) |
(425,959) |
||
Other long term liabilities |
(18) |
(392) |
(1,067) |
(19,083) |
(69,931) |
||
Net Assets |
|
|
2,720 |
5,493 |
7,679 |
17,547 |
301,479 |
Minority interests |
0 |
64 |
(376) |
(1,624) |
(118,563) |
||
Shareholders' equity |
|
|
2,720 |
5,556 |
7,303 |
15,924 |
182,916 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
842 |
4,075 |
5,047 |
12,185 |
72,022 |
||
Working capital |
(1,369) |
3,587 |
(797) |
6,729 |
(33,123) |
||
Exceptional & other |
(26) |
(5) |
91 |
2,559 |
(7,341) |
||
Tax |
(117) |
(415) |
(773) |
(1,427) |
0 |
||
Net operating cash flow |
|
|
(671) |
7,243 |
3,568 |
20,046 |
31,557 |
Capex |
(120) |
(1,471) |
(1,230) |
(9,850) |
(9,267) |
||
Acquisitions/disposals |
0 |
3 |
(383) |
(167,182) |
(299,099) |
||
Net interest |
(11) |
(13) |
(42) |
(2,110) |
(24,875) |
||
Equity financing |
0 |
185 |
(495) |
(243) |
115,558 |
||
Change in finance lease |
9 |
(356) |
28 |
(1,078) |
(1,841) |
||
Dividends |
0 |
0 |
(2,001) |
(2,212) |
(2,968) |
||
Other |
(3) |
36 |
(858) |
(70) |
2,048 |
||
Net Cash Flow |
(795) |
5,626 |
(1,413) |
(162,698) |
(188,885) |
||
Opening net debt/(cash) |
|
|
792 |
1,587 |
(4,039) |
(3,192) |
160,460 |
FX |
0 |
0 |
30 |
8 |
4,459 |
||
Other non-cash movements |
0 |
0 |
536 |
(962) |
(89,140) |
||
Closing net debt/(cash) |
|
|
1,587 |
(4,039) |
(3,192) |
160,460** |
434,027** |
Source: 4iG, Edison Investment Research. Note: *Restated. **Company defined net debt takes account of certain long-term liabilities that are not separately disclosed on the balance sheet.
|
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Research: TMT
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