HONG KONG -(Dow Jones)- Hutchison Whampoa Ltd.'s Italian third-generation mobile unit could have an enterprise value of up to EUR10 billion, according to an HSBC research report seen by Dow Jones Newswires Thursday.
3 Italia SpA, which is 94.5%-owned by ports-to-telecom conglomerate Hutchison Whampoa, aims to float on the Milan bourse in February and is awaiting approval from Italian regulators, sources close to the situation said earlier.
The Italian company, which competes against rivals such as Vodafone Omintel, could raise about EUR2 billion from the initial public offering, sources have said.
The HSBC report said 3 Italia could have an enterprise value of EUR8 billion to EUR10 billion. That implies an enterprise value to earnings before interest, taxes, depreciation and amortization of 11 times to 13.6 times in 2007, and seven times to eight times in 2008, HSBC said. That is slightly higher than the 2006 average of the European mobile sector's estimated EV-to-EBITDA of 6.3 times.
But HSBC said profit measurements are hard to apply, as 3 Italia was EBITDA positive only in August. For 2005, 3 Italia is expected to post a loss before interest, tax, depreciation and amortization of EUR600 million, HSBC said.
HSBC expects 3 Italia to achieve EBITDA breakeven in 2006 of about EUR200 million, and EUR800 million in 2007. The Italian firm's margins could reach the European mobile sector's average of 30% in a few years, HSBC said.
"In margin terms, Italy is a good mobile market," HSBC said in a research note. "However, there can be no assurance that our forecast of near-term EBITDA breakeven, mid-term 30% margins or peak 40% margins can be met."
Goldman Sachs Group, HSBC Holdings, J.P. Morgan, Merrill Lynch & Co., Morgan Stanley, Banca IMI and Banca Caboto are joint global coordinators for the IPO.
3 Italia has also retained Lazard as its financial adviser for the planned IPO.
Hutchison Whampoa started 3G operations in the U.K. and Italy in March 2003. It has since launched 3G in countries including Australia, Austria, Hong Kong, Ireland, Denmark, Sweden and Israel.
A successful listing would make 3 Italia the world's first pure 3G public cellular operator and set the benchmark for measuring the value of Hutchison's 3G businesses.
Subscriber, ARPU Numbers To Rise Amid Competition
3 Italia, Italy's fourth-largest mobile operator by subscribers, had 5.57 million users in 2005, translating into a market share of about 8%, up from 4% the previous year.
Both HSBC and Morgan Stanley said in research reports issued last week they expect 3 Italia's subscriber numbers to more than double in 2009 from last year. By then, HSBC expects 3 Italia to have 13.2 million subscribers, while Morgan Stanley expects it to have 11.8 million.
Morgan Stanley said 2005 customer growth has been strong, but it could slow as rivals increasingly move their subscriber base into 3G services. 3 Italia's share of gross additions slowed in the second half of last year to 19% from 21% in first half, it estimated.
The churn rate, or the percentage of subscribers who discontinue their subscription in a given time period, was also relatively high for 3 Italia, a three-year-old company. 3 Italia's churn rate was 18.7% in first-half 2005, above the Italian market's average of 16.8%, Morgan Stanley said.
"As competition responds to an operator's (market) share gains, the subscriber additions slow and churn can rise," it said.
Blended average revenue per user may grow slightly to EUR32.8 in 2009 from about EUR30.1 in 2005, Morgan Stanley said. ARPU growth will be driven by rising usage of data communications, which generates higher ARPU than voice. The bank estimated data could represent 38% of its ARPU in 2009, up from an estimated 27% last year.
Both HSBC and Morgan Stanley expect 3 Italia to return to positive cashflow in 2007. 3 Italia had net debt of about EUR3.8 billion as of December 2005, and both banks expect 3 Italia's net debt to peak at some EUR4 billion in 2006.
About EUR10 billion has so far been invested in 3 Italia, including license, network, service and customer base development and start-up losses, the banks said.
Total capital expenditure for 2006 and 2007 will be a maximum of EUR900 million, partly for the build-out of the 3G network to 90% of the Italian population from the current 78%, according to Morgan Stanley.
3 Italia, which had revenue of EUR815 million in 2004, is expected to post full-year revenue of EUR2 billion in 2005, EUR3 billion in 2006 and EUR4 billion in 2007, both banks said.
-By Joyce Li, Dow Jones Newswires; 852-2802-7002; joyce.li@dowjones.com
-Edited by David Riordan
(END) Dow Jones Newswires "
Posted to the site on 26th January 2006
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