UPDATE 2-Czech Telefonica posts record profit, shares rise

(Adds CFO, analyst quotes, updates share price)

By Marek Petrus

PRAGUE, Oct 27 (Reuters) - Dominant Czech phone operator Telefonica O2 CR <SPTTsp.PR> posted on Friday a 34 percent year-on-year jump in nine-month net profit, beating analysts' forecasts and boosting its share price.

The company, formerly known as Cesky Telecom and 69-percent owned by Spain's Telefonica <TEF.MC>, reported net profit of 6.85 billion crowns ($306.1 million), the best result ever for the nine-month period.

Earnings beat even the highest forecast of 6.72 billion crowns in a Reuters poll of analysts, as lower one-off costs and growth in mobile and data services helped boost profitability despite the shrinking fixed-line voice business.

Telefonica O2 CR shares were up 1.2 percent at 464.80 crowns at 1327 GMT, outperforming an 0.8 percent fall in the Prague blue-chip PX index <.PX>.

Nine-month revenue grew 0.6 percent year-on-year to 45.60 billion crowns, ahead of the company's outlook -- confirmed on Friday -- of flat revenues for the full year.

The former monopoly has battled steep revenue erosion due to stiff competition on the liberalised domestic market and a shift by clients from fixed lines to mobile phones.

Voice traffic revenues fell 13.3 percent year-on-year and the number of fixed telephone lines shrank 15.5 percent. But revenues from Internet and broadband services rose 7.0 percent and total mobile revenues grew 5.9 percent.

Profits have improved over last year, when earnings were burdened by one-off costs related to the sale of the state's majority stake in the company to Telefonica and massive layoffs to streamline the operator.

SLOVAKIA UNDER SPOTLIGHT

Operating income before depreciation and amortisation (OIBDA) rose 4.1 percent to 22.15 billion crowns, above analysts' average forecasts of 21.57 billion crowns.

The company upgraded its full-year OIBDA outlook, saying it now expected about 2 percent growth for 2006 instead of flat as it had previously forecast.

But Chief Financial Officer Juraj Sedivy told a media conference call that the planned launch of wireless services in neighbouring Slovakia in early 2007 would hurt OIBDA next year, but gave no specific estimate.

The company confirmed its outlook for 1 to 3 percent OIBDA growth until 2009.

"The Slovak mobile rollout will affect the dividend policy going forward, and that's something the market will be wary of. It is not going to be cheap," said Pamela Antay, analyst at KBC Securities in Brussels.

"Cesky Telecom has always had premium valuation compared to its peers because it has been seen as a very stable, risk-free place... But now there is a certain risk. I think we will see the valuation to adjust to it going forward," she added.

According to Reuters Estimates, the company trades at 19 times forecast 2006 earnings, higher than the DJ Stoxx telecoms index's <.SXKE> average of about 14 times.

(Additional reporting by Jan Korselt)

((Editing by Will Waterman/Sue Thomas

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Keywords: st TELECOMS CZECH O2