The country’s largest telephone company, Matav Rt, announced a pair of dramatic steps last week, aimed at making its shares more lucrative and raising the profile of its biggest single profit driver, mobile company Westel Rt.

After posting disappointing corporate results for 2003, Matav’s board of directors proposed a dividend payment of Ft 70 per share, amounting to a total of Ft 73 billion (€288 million). Analysts said this move raises the profile of the stock in the eyes of shareholders, but rules out the company making acquisitions in the immediate future.

The dividend payout ratio is excessive compared to the firm’s 2003 earnings per share of Ft 55, according to Szabolcs Szikszai, an analyst at Takarekbank Rt. He interpreted the high payout as the action of a worried company.

This level of dividend payment ensures that the Matav group’s capital structure will remain at the optimal level, as defined in the dividend policy dated March 21, 2003, read a press release from Matav.

The dividend for 2003 is higher than ConCorde Securities Rt’s Ft 53 per share forecast, said Péter Mihalicza, an analyst at ConCorde.

Mihalicza added that likely Matav acquisition targets are located in the Balkans and could either be incumbent operators, mobile or alternative operators. The dividend policy allows Matav to almost quadruple the dividend payment compared to last year, said the company’s press release.

Sarkadi Szabo forecast that Matav’s net profit for 2004 will be under Ft 50 billion. Last year’s net profit of Ft 57.5 billion also disappointed analysts. A Ft 60–Ft 70 dividend is possible next year as well, as long as there are no acquisitions that eat into free cash flow, according to Sarkadi Szabo. Matav basically acts as a dividend share, or a quasi bond, meaning that minority investors buy it more for the dividend payment rather than a huge expected increase in share price, Sarkadi Szabo explained. However, he cautioned that market factors can also impact the share.

“Even though the dividend yield this year will be around 7.5%, it’s still a question whether, as interest rates will fall throughout the year, this will be enough to attract investors,” he said.

The dividend proposal will be on the agenda at Matav’s annual general meeting on April 28.

(BBJ 29.iii.04)