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Why Third Avenue Dialed into This Polish Telecom

Third Avenue International Value's Amit Wadhwaney makes the case for Netia, a top-five holding in the portfolio.

Michael Breen: A new name that we have not talked about and that I am not even that familiar with is Netia. I believe it is a Polish company. Maybe you can let us know about that new addition?

Amit Wadhwaney: Sure. Netia is a Polish telecom company. [It] was conceived during the telecom bubble. They have built Poland's largest fiber-optic network after Polish Telecom. Poland has a very sizable rural population. And, of course, there's not much competition from cable. So this in and of itself is a very interesting idea and a very unique asset.

Post the telecom bubble, business wasn't as good as it was expected to be, projected to be. And the company went bust. It was recapitalized, re-emerged with a terrific balance sheet. A business that was growing quite rapidly with a clean balance sheet, cash on the balance sheet.


Now, Netia is benefiting from deregulation of the Polish telecom market. There is what's called "local loop unbundling," which gives Netia access to the end customer at an increasingly modest fee. So Polish Telecom has to allow them to access the end customer. This allows Netia to offer all sorts of services. Be it the traditional triple play. Be it Internet, telephone, as well as cable. And the thing about Netia is that they've been adding customers at a terrific rate. So, you have a rapidly growing top line and a bottom line that's growing also.

The one interesting thing that happened over the last, say, three months--the largest shareholder in the company, an Icelandic entity, had a big margin a call. They had to, of course, get rid of all their shares--as a result of which, Third Avenue wound up becoming the largest shareholder.

Implications for that--well, we like the company; we like the management. However, we needed, shall we say, a greater cost focus at the company. And, we've changed the board.

This company is quite, quite well capitalized. It's also very inexpensive--it's at about 3 times operating earnings.