In the latest update to our equity research report on GO plc (“GO”), we upgraded our stock rating to a buy stance with a one-year price target of €4.70, offering an upside of 18% as of this writing. GO is categorized as a defensive stock, which is typically less affected by wider shocks to the economy, inherently making it less risky than other equities.
GO is currently trading in-line with its 5-year average of 21.4x earnings, despite the expected special dividend following the 49% sale of BMIT and the potential growth of its investment in Cyprus via Cablenet. In fact, GO should be in a position to distribute around €40m worth of special dividend, which equates to around €0.39 per share. Based on this assumption, and that the IPO of BMIT will be successful the real current price that investors would be paying is €3.59 based on the latest price of €3.98.
At a theoretical price of €3.59, the price to earnings multiple falls to around 20x based on the performance of the last twelve months, and 19.4x based on our forecasted earnings per share of €0.185 for financial year 2018, making it attractive.
Assuming that GO will retain their current level of normalised dividend of €0.13 per share, which is very achievable given that it’s dividend payout ratio is of 70% based on forecasted earnings for 2018, at the current price level, the stock would be offering a relatively attractive theoretical dividend yield of 3.6%. This is also in spite of the growth avenues offered by its growing core business in Malta, its on-going investment in BMIT as well as its investment in Cyprus.
With specific reference to Cablenet, we expect Cablenet’s revenues to continue to increase, sustained by the growth of the Cypriot economy, as well as the entrance into the mobile telephony market via a Mobile Virtual Network Operator agreement with CYTA Mobile Network, which allowed Cablenet to offer a complete telecommunication package to its customers.
Comparing GO to BMIT on a stand-alone basis, BMIT is expected to distribute a dividend yield of around 4.4% at an extremely elevated payout ratio. GO offers a 3.6% dividend yield at a 70% payout ratio, offering arguably more room for dividend growth when observing the historical payout ratios (according to our calculations this could be increased to 80% of earnings), albeit GO’s business model requiring significantly more capital investment, therefore arguably justifying the lower payout ratio.
Investors who deem BMIT to be on the high side in terms of risk, should look at GO as a lower risk alternative that could arguably offer better returns on a risk adjusted basis in the long term.
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