Hutch reiterates enhanced M&A financial capability

O2 acquisition shouldn't be a hindrance.

It has been noted that while Hutch’s FY14 recurring net profit growth was lacklustre (up three percent y-y; in line with consensus and four percent below Nomura's estimate) owing to negative impact from lower oil price and forex (as Nomura expected), the results had no negative impact to Nomura's NAV estimate (HKD135).

According to a research note from Nomura, this is due to solid underlying growth from the core divisions of 3 Group, retail and infrastructure, which should remain as the growth drivers for Hutch in 2015F.

Further, it believes that more importantly, investors will likely look beyond the results and focus predominantly on the group restructuring implications.

Also, the report noted Hutch's enhanced financial capability for M&As and potential industry consolidation in Italian mobile.

It said management reiterated Hutch’s financing capability to participate in any industry consolidation in the mobile markets in which the company already operates, and the O2 UK acquisition does not hinder other M&A opportunities elsewhere.

Here's more from Nomura:

We believe market conditions have become increasingly favourable for consolidation to happen in the Italian mobile market, as regulatory bodies have already shown support to similar consolidation in other markets (from four to three players).

In addition, 3-Italia’s return to LBIT in FY14 might draw Hutch closer to the negotiation table since a consolidation appears to be the more effective remedy for improving profitability, in our view.