CAIRO: Pressured by a relentless global sell off that looms on Egypt’s telecom stocks as well as an imminent second fixed-line operator, Telecom Egypt’s (TE) expansion into the region is the logical next move, said an analyst.
“At a time when global telecoms are feeling the pinch from an overall negative sentiment, it’s time for TE to expand regionally at currently low valuation multiples, said Mohamed Hamdy, telecom analyst at CIBC Brokerage firm.
According to CIBC, fears of a global economic meltdown have weighed on telecom stocks in both developed and developing countries. A slew of ailing US financial institutions partly resulted in a loss of confidence in the US economy, which in turn, crashed consumer spending on telecom services, among other sectors.
Meanwhile, European telecom operators are reeling from stiff competition as their markets have reached maturity levels, CIBC noted. Closer to home, CIBC dubbed Egypt’s telecom stocks the worst performing in the last year and a half.
“Generally speaking, telecom has been the worst performing sector among all 12 sector indices run by the Egyptian Stock Exchange. In fact, it is virtually the only sector an investor would have lost money in since the beginning of 2007, the firm said.
“Globally, multiples in telecom operators are slipping, so this is a good time for acquisitions in the telecom sector, Hamdy added. “And TE currently has enough liquidity to expand into new markets.
He pointed out that the company had about LE 1.3 billion ($244 million) of available cash, generated from Vodafone Egypt’s annual dividend distribution of LE 7.60 per share last June. TE owns 44.8 percent stake in Vodafone Egypt, the country’s second largest mobile phone operator.
Facing saturation in its home market and competition for the first time – with Egypt due to sell a second fixed-line license in September – TE announced August 14 it could spend at least $1 billion on an acquisition in the Middle East or North Africa to capture growth abroad.
“Our first priority in using our cash is for an acquisition, and one large one is better than several small ones, Company Chairman Akil Beshir recently told Reuters. “Our preference is for the MENA (Middle East and North Africa) region but if there is a good opportunity in Africa or Eastern Europe we will look at it.
TE officials did not divulge specific countries; however, news came out last March that they might enter Lebanon. Beshir said in March the company was in preliminary talks on an acquisition and could conclude a deal by the end of the year. The company was seeking an existing mobile and fixed-line operator in emerging markets.
Public-dominated TE is the region’s largest provider of fixed-line services with more than 11.3 million subscribers at the end of June, up 3 percent from last year. However, Hamdy explained the company is currently under pressure from both mobile phone operators as well as a second-fixed-line operator.
“Expected competition from the second fixed-line operator is to put further pressure on TE’s retail segment growth, in addition to existing competitive pressure from mobile operators that offer lower tariffs for voice calls, Hamdy said. “That’s why the company is eyeing new markets.
TE said in early August the number of fixed-line subscribers in the second quarter grew only 0.1 percent from the first quarter. “Naturally, mobile voice calls are taking over fixed-line voice calls, therefore, growth in fixed-line operations is lower, Hamdy explained.
Burdened with fierce competition from mobile phone operators, TE upped this summer its tariff rates by a reportedly 50 percent, triggering dismay among many subscribers.
“Having a second-fixed-line operator could also overstrain TE’s operations although the company said the new operator lacks necessary infrastructure and [will have to use] TE’s infrastructure, which could be a new retail segment for TE, Hamdy clarified.
TE sources the Daily News Egypt previously spoke to reiterated the same views, saying a new landline operator might work in TE’s favor and further boost its revenues.
“Our cables and stations cover the entire republic. A new operator will not be able to efficiently cover the country like we do, so they will resort to leasing our stations, Ali Gamal El-Din Salama, TE’s vice chairman of commercial and financial affairs, said at that time. “Who will be willing to invest millions and millions of pounds to build stations across the republic?
TE – Egypt’s fixed-line monopoly telephone operator – posted this month its fifth-largest quarterly profit on record, helped by its stake in Vodafone Egypt.
The company said it scored LE 681.2 million ($127.8 million) in the three months to the end of June, up 65 percent from last year. Earnings from Vodafone Egypt jumped 25 percent to LE 330 million.
Beshir said the company was on track to meet its forecast for full-year revenue growth of between 2 percent and 3 percent and that full-year profit should grow faster than last year’s 4.4 percent pace.