National Bank of Kuwait - NBK said it has cut its 12-month fair value for Telecom Egypt -TE by 15% to EGP13.40 per share, mainly on the back of a lower operating margin outlook. Accordingly, it maintains its Hold recommendation.

NBK believes that TE will witness pressure on margins, primarily from salary increases but also from interconnection costs.   

As for revenue outlook, NBK has raised its capex/sales forecast for FY2015 from 15% to 18%, a similar level to FY2014.

TE had previously guided for revenue growth of 5% YoY for FY2015, noted NBK, where management revealed that it has launched an aggressive plan to pursue growth in its retail line of business, which is supported by a noticeable increase in demand for broadband services.

NBK pointed out that TE is still mulling over what to do with VFE stake, as in November, TE’s CEO stated that the company might not sell its 45% stake in VFE. Since TE is not legally obliged to sell its stake, management will consider how to move forward with it once the government decides to auction the 4G spectrum.

NBK cut its DPS forecast for TE for FY2014 and FY2015 to EGP0.7 from its previous estimate of EGP 1.0 in light of number of reasons, namely; ramp up of fixed-network capital spending following more than three years of minimal capex, depressed margin outlook and upcoming payment of EGP2.5 billion for a unified license.