Cairo – Mubasher: MubasherTrade Research has upgraded its fair value (FV) for Telecom Egypt (TE) to EGP 18.80 per share from EGP 8.34, with a “Buy/Moderate risk rating”, according to a recent report.
TE’s earnings rose 22% year-on-year to EGP 1.27 billion in the second quarter of 2017 from EGP 1.04 billion in the same period last year.
TE’s management attributed this increase to higher demand for data services, higher ICA and ICN services as well as higher investment income from Vodafone Egypt, which is highly impacted by FX gains, the report added.
Meanwhile, TE posted a gross profit margin of 77% in Q2-17, versus 83% in Q2-16, reflecting a decrease of 645 basis points (bps) year-on-year on the back of higher interconnection costs, mainly impacted by the EGP flotation.
Moreover, EBITDA margin declined to 31% in Q2-17 from 34% in the year-ago period, due to higher salaries.
The report further noted that TE has benefited from the profit and loss level from the EGP flotation, which took place in November 2016, as one third of TE’s revenues is US-denominated which helps the telecom operator to finance its huge CAPEX requirements which are mostly “benchmarked to the US dollar.”
It is worth mentioning that TE has officially launched its mobile network under the slogan “WE”.
Egypt’s National Telecom Regulatory Authority (NTRA) is set to officially activate fourth generation (4G) services for all four mobile operators within weeks.
On the other hand, the main down risk to this new operator “WE” is “the quality of the customer service, which is a critical success factor for the mobile business,” according to MubasherTrade Research.
It noted that Egypt’s 110%-penetrated mobile market is not seen as an issue compared to other markets, such as Algeria, Morocco, Jordan, Iran, and Tunisia which had “a median penetration rate of c.135%.”
