Hutchison Whampoa, Netia: European Telecom Companies

Amit Wadhwaney presented his in-depth investment thesis on Hutchison Whampoa (Hong Kong: 13) and Netia (Warsaw: NET) at European Investing Summit 2013.

“One of the most intriguing opportunities unfolding this year so far: European telecoms.” Significant value destruction in major European telecoms over the last five years. However, an inflection point may await as there is much pushing this sector towards a better place, with the recognition of the scale of the problems that face the EU being a first step. Intra-market consolidation has begun to happen and regulators don’t seem opposed (e.g. Ireland, Germany, perhaps Italy). Inter-market consolidation is also becoming a possibility. Moreover, fiber-in-the-ground developments hold the promise of contributing to improved profitability dynamics. Specific ideas to profit from the European telecom opportunity:

Hutchison Whampoa: Ironically, this Asian-listed conglomerate is now more than 50% “European” as of the end of 2012, with significant exposure to select European telecom assets (Ireland, Austria). NAV estimates for the company range from HK$100-145 per share (recent price HK$98), attributing zero to negative value for Hutchison’s European telecom operations. The latter could become a significant “positive” net asset given the regulatory revamp of the Euro telecom industry. The company is also very well capitalized and can withstand all sorts of difficulties in the interim – an advantage relative to European telecom businesses, many of which are highly leveraged.

Netia: Fiber assets become particularly valuable in a world where mobile-only telecoms seek to combine with fiber optic capacity owners in order to limit churn by offering triple and quadruple communications offerings. Netia has the second-largest fiber optic network in Poland with reach into rural markets as well (also attractive for cable companies that are weak in rural). Even without the M&A context, Netia is undervalued on a stand-alone basis trading at 3.6x trailing EBITDA.

About the instructor:

Amit Wadhwaney has managed foreign stock portfolios since 1996. He has been particularly interested in emerging economies where he has long believed that market inefficiencies favor bottom-up value investors. Amit is the founding manager of the Third Avenue International Value Fund, an open end mutual fund, as well as the Third Avenue Global Value Fund and the Third Avenue Emerging Markets Fund. Amit also manages the Third Avenue International Value Fund UCITS for overseas investors as well as institutional separate accounts. Earlier in his career, Amit was a securities analyst, and subsequently Director of Research, for M.J. Whitman, Third Avenue’s affiliated broker-dealer. Amit was also a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm. He began his career at Domtar, a Canadian forest products company. Amit holds an M.B.A. in Finance from the University of Chicago, a B.A. with honors and an M.A. in Economics from Concordia University in Montreal (where he also taught economics) and B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota. He speaks French, Spanish, Hindi, Sindhi, Gujarati and English.