Telestrada: cheap Polish telecom stock with low trading volume
Telestrada sells land-line phone services and mobile phone services to retail customers and also sells land-line phone services to Polish detainees. The business of providing land-line phone services is basically in run-off mode. In addition the company does not expect much growth in selling phone services to Polish detainees. The company tries to grow in providing advanced (“virtual switchboards”) and standard communication services to business consumers and public institutions and wholesale services for other operators.
The stock trades on the NewConnect exchange in Warsaw with symbol TLS. Currently the share price is 18.2 PLN and the market cap is 9.4 million USD. I had a look into the annual report over 2023.
My remarks here may not be accurate since I depend on software translations of Polish to read the company filings and announcements. Furthermore, I did most of my analysis about 6 weeks ago, so new developments might make my remarks here inaccurate.
I have not found quantitative information on how much each of these business segments is growing or is declining. I suppose there is no growth story, which is something I like. I try to avoid stocks with a growth story since I believe such stocks have lower returns on average.
Almost all revenue is from Poland.
After year end the company lost a lawsuit about a fine imposed by a market regulator. The decision is final. I think the company has paid this fine of 8.4 million PLN already and that this payment is reflected in the latest balance sheet, of 31 March 2024. Because the company also made a provision the fine will not make any difference for profitability in 2024.
Also the company writes it made an investment of almost 10 million PLN in another listed company to avoid the fine. That did not work. Unfortunately the company is sitting on a loss of 1.5 million PLN on this investment. This loss is not included in my computation of EBIT but it is included in the P/E multiple. The company will sell these shares when they reach the right price, at least 35 PLN.
Substantial shareholders: president of the management board Jacek Lichota 56.0% (67.3% of the votes), Zolkiewicz & Partners Investment in Value Closed-End Investment Fund 8.1% (6.0% of the votes).
Management compensation: 1.2 million PLN in 2023. The members of the supervisory did not get any compensation. Otherwise there were no related party transactions.
I think four of the five members of the supervisory board are relatives of the controlling shareholder. Two of them have surname Lichota and two of them have surname Gaÿkowski.
I think four of the five members of the supervisory board are relatives of the controlling shareholder. Two of them have surname Lichota and two of them have surname Gaÿkowski.
The balance sheet is strong. After accounting for the fine leverage is low, the current ratio is high, there is plenty of cash and no significant debts.
In 2018 and before the company paid dividends. Then the company switched to repurchases. In 2023 the company did not repurchase any shares, probably because of the situation with the fine. I think this company is very shareholder friendly.
My take: cheap Polish niche telecom company based on EV/EBIT (about 3) and P/E (about 6). Good quality metrics, among others a high multiple Gross Profit/Total Assets.
A big red flag is the fine they got from the Polish consumer market regulator. Otherwise I have not found any governance issues. The company is shareholder friendly having paid dividends and having done repurchases except for in 2023.
I also like the low trading volume in this stock. At down days little volume can drive the stock relatively much down. That predicts higher average returns. Furthermore the share price is less volatile than share prices of most other stocks.
All in all, I think this is a good stock for a small position.
Disclosure: long shares of Telestrada SA.
WoW I would never expect that any foreigner know anything about such a niche company from Poland. Nice to read your analyse. In This case the details metters a lot and I will tray to clarify some of them below.
We have got several important factors that affect previous operation results. It is important to know them to estimate comapny's potential correctly. First let take a look at the company in genaral:
There are three main segments in Telestrada operations.
The first is phone services that consits of 2 subsegments. Land-line phone services that decrease about 3-4% per quarter. According to the Q1 report there are about 12.5k active numbers. The rest is mobile phones mostly. They have low cost "LaitMobile" brand https://lajtmobile.pl. This part is increasing about 3-4% per quarter. The offer is currently very atracctive mainly becouse of the raising prices among comeptitiors. So, to sum it up - this segment is growing about 10-12percent per year. Number of cards is reportent monthly. There is stady incerease about 1%percent per month.
The second part is telko servies for prisoners. The brand here is WhitePhones https://whitephone.pl The company have kind of old school aparats in prison. Thats highly profitable segment. Becouse of TLS position the margin is very good. In this segmenet the top performance has been reached. There is no way to further increase the number of phone aparats in prision but there was some restrictictions impose on the prisoners by previous Polish governemt. So theoretically, some growth couse by the amount of phone calls or some pricing change is possible.
The last one are business services. They do some telko traffic management, call trees services etc. I am not able to estimate growth in this segment so I assume const results in my estimations
A few fact about the fine:
The fine was imposed by Polish UOKIK office in 2020yera. It was fully ecounted in 2020 results. There was a long legal process (some appeal )and the final setence was published at the beggining of this year. Now, the case is the past - that's no longer importent. It is not affect current results in any way.
"Also the company writes it made an investment of almost 10 million PLN in another listed company to avoid the fine."
That's a total misunderstending. There was a period with very low interest reate, acctualy everywhere around the world, so the comapny had 10milion PLN and a potential fine a copule of years ahead. Theere was a plan to inwest it in another company with ticker CPS. CPS stock prices decreased havely and it affected past company results.
Just take a look at the financial cost. That's a result of market cap reeavluation of CPS's stocks that TLS have. Now this tendency turned and CPS stock is rising, so the efect will be positive. The operation was taken not to avoid the fine but the resaon was simply related to capital allocation.
you can follow most of Polish companies results here:
https://www.biznesradar.pl/raporty-finansowe-rachunek-zyskow-i-strat/TELESTRADA
In 2023 there was no share repurchase - the reason for that was: liquidation of shares that are preciously boutht. Then at the beggining of 2024 they had sentence publication and just after that the repurchase process was finallized.
Another importent case is the company currently has its own office in Wrasaw and some lands where another one will be build
https://www.proconst.pl/realizacje/telestrada.html
In my own calculations, I assume that the comapny is currenntly able to earn 8-9milion. This year positive CPS reevaluation is very likelly. So at the net profit level even 10milion is possible. That is my estimation of repetative expected result . So the true forward PE is about 4-5.
Sorry for my English :)
Please let me know if you have any specific questions.
.