• Dividend surprises positively despite net loss 4Q2015 saw a net loss of KWD1.4 million, versus our forecast of a KWD15.6 million profit and 3Q2015 profit of KWD13.3 million. The loss was due to: i) FX translation losses in Tunisia and Algeria; ii) weak macro conditions in Tunisia; iii) intense competition in Algeria; iv) KWD9 million FX loss mostly from Algeria; and v) a one-off KWD16.7 million impairment loss on its investment in Tunisia. The main positive surprise was a significant DPS hike to KWD0.100 (dividend yield: 9%), significantly above our estimate of KWD0.070. We believe this should lead to positive share price performance in the short to medium-term, and we reiterate our Buy rating as it trades at undemanding valuations with a 2016e EV/EBITDA of 3.4x versus the average of 5.1x for our MENA telecoms coverage.
• Star performer: Kuwaiti unit… Revenue from Kuwait grew for the fifth consecutive quarter (+15% Y-o-Y) and the EBITDA margin rose 5pp Q-o-Q to a healthy 34%, above our estimate of 30%. We see this as a sign of a steady recovery in Kuwait following its restructuring and its network modernisation. We keep an eye on the Kuwaiti market as we have concerns that Ooredoo’s turnaround could lead to further competition in terms of market and revenue share.
• … but Algeria and Tunisia negatively hit Group EBITDA Group revenue was pressured by strong competition in Algeria and a challenging macro environment in Tunisia, as well as Q-o-Q depreciation in DZD (-3%) and TND (-4%). The Group EBITDA margin was 34.1%, slightly below our estimate due to weakening margins in Algeria and Tunisia. Algeria’s margin fell to 33% from 41% last quarter, while Tunisia’s margin fell to 31% from 43%. The company has not provided further clarification regarding margin pressure; we remain concerned about aggressive competition in Algeria and the bleak macro picture in Tunisia.

Omar Maher
Karim Riad