• Bottom-line unexpectedly back in the red GTH’s 2Q16 bottom-line disappointed – a loss of USD3mn vs. our estimate of a profit of USD39mn, vs. 1Q16 net profit of USD48mn and a net loss of USD29mn in 2Q15. The miss was a result of a weaker-than-expected EBITDA margin in Algeria (51.6% vs. our estimate of 57.4%), while its revenue slid 24% Y-o-Y and 10% Q-o-Q, broadly in line with our forecast; note that the Algerian Dinar (DZD) depreciated 11.5% Y-o-Y and 1.5% Q-o-Q. We view the results in Algeria as discouraging; however, we believe this is more than priced in at the current level. We expect its Algerian challenges to overshadow the strong performances it has shown lately in Pakistan and Bangladesh, including 2Q16. We remain Buyers of GTH on its low valuation and improved outlook in the long-term.
• Algeria: tough competition, lagging 3G coverage and seasonality Management said that Algeria remains very challenging and expects operating pressure to persist in 2H16 before it starts to stabilise. Djezzy was hit by ARPU erosion and ongoing churn as a result of 3G coverage shortfalls (which should cease by end-2016), as well as seasonality effects as there were more days in Ramadan (low-usage month) in 2Q16 Y-o-Y. We believe Algeria’s performance should begin to improve in 2017 after a full rollout of the 3G network in all 48 provinces (currently 41 provinces) and the rollout of the 4G network in 3Q16; its licence was awarded this May.
• Margins weaken, but partially offset by interest charge saving Group EBITDA margin came in at 44.0% versus our estimate of 47.4% due to margin weakness in Algeria. Moreover, depreciation and amortisation came in above our estimate, up 8% Y-o-Y and 26% Q-o-Q, further pressuring earnings. On a more positive note, net interest expenses fell sharply (-18% Y-o-Y, -19% Q-o-Q) following the successful replacement of the shareholder loan with lower-interest bonds in April 2016.

Omar Maher
Karim Riad