Italy deal likely to be announced next week
Bloomberg reported that the merger between 3 Italia and Wind could beapproved by the European Commission next week, according to sourcesfamiliar with the matter (“Hutchison-VimpelCom Italy Deal said to get EUApproval Next Week”, 25 Aug). We believe the deal (if completed) will be a keydriver to support earnings growth for the business over the next 3 yearsreflecting: 1) ~8% lift to CKH’s EBITDA from the deal as shown below, 2)potentially larger than expected synergy benefits with the EUR5bn NPVguidance being a minimum estimate, and 3) potential savings on interest costsas the JV is likely to have a better credit rating given CKH’s participation.Furthermore, roaming charges received from Iliad will further cushion the JV’searnings over the next few years.
Deal value somewhat in the price but more likely to go
We value CKH currently at HKD108/share excluding the uplift from the Italydeal which we believe could lift CKH’s valuation by another 5-10%. WhileCKH’s share price has rallied strongly recently since the initial drop from theBrexit (up ~22% off its lows), we think its share price will continue to be wellsupported over the near to medium term from: 1) a better earnings outlook asoil price drag comes off, 2) increased clarity around the contribution from theItaly deal, 3) further M&A / capital management opportunities given plenty ofcapacity still on the balance sheet, and 4) stability in senior management withthe CEO recently showing his commitment by purchasing another 1m sharesin the business.