• Faster return to profitability warrants FV hike With a strong 1Q16 under its belt (net profit: USD48mn), we believe GTH is well-positioned to return to profitability in 2016. We previously expected a modest profit from 2016; but we raise our EPS estimates for our forecast horizon to reflect the stronger profitability profile. Our new forecasts reflect better margins due to the transformation programme. We raise our FV by 8% to USD2.93/GDR (EGP5.20/share) and reiterate our Buy rating as our FV continues to offer attractive upside potential, currently 65%. • An unjustifiable discount to peers; reiterate Buy GTH is trading at 3.0x its 2016e EBITDA (4.0x on proportionate EBITDA) versus 5.5x for MENA telecoms under our coverage and versus 6.5x for EM telecoms (members of MSCI EM index). We believe this discount is due to market concerns on Djezzy’s operating challenges and some ongoing concerns on governance by GTH’s majority shareholder, both of which we share. However, we believe these issues are more than priced in at the current price and we see this discount as excessive. Our FV implies a 2016e EV/EBITDA of 3.9x (5.2x on proportionate). Moreover, the market price implies a 2016e EV/EBITDA of 1.1x for Djezzy, which we see as irrational. • Loan refinancing done; next catalyst: Algeria dividend Much of the stock’s recent strong performance was due to the refinancing of the shareholder loan. GTH’s GDR is up 36% YTD and its local listing is up 48% YTD owing to the devaluation of the EGP. This is why we picked GTH as a key tactical trade in 1Q16, and it has outperformed MENA telecoms YTD. The next leg of the rally, we expect, will be driven by potential news regarding the release of dividends from Algeria. We estimate Djezzy booked cUSD277mn profit in 2015, of which GTH would get a minimum dividend of USD54mn (pay out: 42.5%) and a maximum of USD126mn (pay out: 100%). In absolute, the amount is not substantial, but it is a positive signal to the market and could lead to dividends from GTH in the future.
Omar Maher Karim Riad
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