• Dividend surprise enthuses the market rather than foreign ownership du’s 2H2015 dividend was AED0.20/share boosting 2015 DPS to AED0.43 above our estimate of AED0.36 and implying a yield of 7%. This was well received by the market and we believe this could be the short-term share price driver rather than anticipation of the stock being opened up to foreigners. On the results conference call, management said the board of directors has not ruled out foreign ownership, but no decision has been made yet. Seeing how the market currently values Etisalat after it allowed foreign ownership last year, we expect du to follow suit. du trades at 13.5x 2016e earnings versus c18x for Etisalat and c10x for MENA telecoms. We reiterate our Neutral rating on both names.
• Progressive dividend policy here to stay despite slowing growth Management confirmed that the company will maintain its progressive dividend policy despite softer growth in the industry on slowing – yet solid – macro dynamics. We expect a DPO of 83% in 2016 vs. 78% in 2015 (excluding a special dividend in 1H2015 that would put total DPO at 101%), which was in line with our estimate. We note that du’s dividends may come under pressure due to an increase in royalties and slowing top-line growth. Price-based competition was aggressive in 2015, especially in the data segment, but we do not expect this to carry through beyond 2016. Moreover, management does not see room for further EBITDA margin expansion beyond the mid-40s level.
• Financial statements reveal nothing new du published detailed financial statements that showed no surprises versus its preliminary figures announced over two weeks ago. 4Q2015 numbers were in line with our estimates at the operating level, but earnings missed our estimate by 10% due to higher-than-expected depreciation and amortisation charges. Excluding the increase in D&A, earnings would have been exactly in line with our estimate.

Omar Maher
Karim Riad