OKAZ Stock Brokers & Investment Consultants issued a report on telecom firm Telecom Egypt (TE), raising its fair value estimate to EGP 17.26 from EGP 17.29 and upgrading its recommendation on the stock to Strong Buy from Buy.
The report issuer said it expects the stock to record 37% total return including 10% expected coupon yield.
The increase in Egypt’s mobile phone subscribers to more than 100 million is the key threat facing the company, as it fuels competition among telecom operators and gives TE two choices: to attract subscribers from other firms, which will trigger a price war and thus hurt the sector’s profitability, or to sell additional lines to subscribers of other providers and this will reduce the usage rate per line, according to OKAZ.
The brokerage firm also said that, under the universal license, the mobile operator will have the right to provide landline service for a license worth EGP 100 million, in addition to a possibility of being granted the international calls gate (for Mobinil and Vodafone Egypt), as Etisalat Misr has its own international gate. It indicated that this will negatively impact TE’s retail and wholesale revenues.
OKAZ forecasted TE consolidated revenues to rise by a 5-year CAGR of 9% during 2014-2018. It expected TE’s topline to decline by 1.5% this fiscal year to EGP 11.127 billion due to the slide in wholesale revenues.