Mubasher up­grades Tele­com Egypt fair value, rec­om­mends buy

The re­port fur­ther noted that TE has ben­e­fit­ted from the pound flota­tion

The Daily News Egypt - - Business | Stock Markets -

Mubasher Trade 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-onyear 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 2017,ver­sus 83% in Q2 2016, re­flect­ing a de­crease of 645 ba­sis points (bps) year-on-year on the back of higher in­ter­con­nec­tion costs, mainly im­pacted by the flota­tion of the Egyp­tian pound.

More­over, EBITDA mar­gin de­clined to 31% in Q2 2017 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 pound’s 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 that 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 Mubasher Trade 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%.”

Mean­while, Pharos Re­search said that the Cen­tral Bank of Egypt’s (CBE) de­ci­sion to raise the re­serve re­quire­ment on banks will have a short-term nega­tive im­pact on net in­ter­est mar­gin (NIM).

This de­ci­sion will de­vour 5% of the fair value (FV) of listed banks, Pharos added in a re­cent re­port.

The CBE will raise the cash re­serve ra­tio to 14% from 10% start­ing from 10 Oc­to­ber 2017.

Pharos in­di­cated that banks will tend to pro­tect prof­itabil­ity through low­er­ing in­ter­est rates paid on de­posits to com­pen­sate for the lost yield and re­quest­ing higher rates of re­turn in trea­sury auc­tions.

The re­quired re­serves ra­tio set­tled at 14% be­tween 2001 and 2012, and was grad­u­ally low­ered since Jan­uary 2011 by 4%, un­til it reached 10% to sup­port the Egyp­tian bank­ing sec­tor.

Pharos noted fur­ther that Com­mer­cial In­ter­na­tional Bank - Egypt (CIB), Credit Agri­cole Egypt, and Ex­port De­vel­op­ment Bank of Egypt (EBE) will be the least af­fected by the CBE’s de­ci­sion be­cause of the lo­cal de­posits these banks have.


The main down risk to this new op­er­a­tor “WE” is “the qual­ity of the cus­tomer ser­vice

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