22-Feb-2017
Ooredoo Kuwait - 4Q16: Kuwait unit shows signs of recovery; reiterate Buy on attractive valuations
Rating: Buy
Target Price: KWD1.60
Closing Price: KWD1.24
Earnings in line despite softer EBITDA margin; DPS below estimate
Earnings came in at KWD14.5mn vs. a loss of KWD1.4mn last year (which was due to a non-cash impairment-loss on the investment in Tunisia) and in line with our estimate. This was despite a slightly weaker-than-expected EBITDA margin of 34.0% vs. our estimate of 35.5%; we suspect there may have been a one-off gain below the operating line that we did not expect. Revenue was broadly in line with our estimate at KWD174mn, showing some stabilisation Y-o-Y. The Board of Directors recommended a DPS of KWD0.085 for the year, implying a yield of 7% and coming in a mild 6% below our estimate of KWD0.090. Overall, we see the results as unsurprising, with some encouraging signs of stability in Kuwait, but we remain concerned about the macro-economic challenges in Algeria and Tunisia. However, these concerns are currently more than priced in, in our view; the stock offers a compelling upside of 32% to our TP and trades at a FY17 EV/EBITDA of 3.6x, a significant 35% discount to our MENA telecoms coverage average of 5.6x. The stock also offers one of the highest dividend yields across our coverage. We reiterate our Buy rating on Ooredoo Kuwait.
Macro challenges in Tunisia and a weak operation in Algeria…
Revenue from Algeria was 7% lower than we expected, while EBITDA margin surprisingly fell to 28% for the quarter vs. an average of 37% for 9M16 and vs. our estimate of 37%; it is not clear what caused this weakness. In Tunisia, both revenue and EBITDA were broadly in line with our estimate, weakening Q-o-Q, as the country continued to suffer from a worsening macro-economic environment due to the slowdown in tourism.
…but this was partially offset by stable performance in Kuwait
Weakness in Algeria and Tunisia was partially offset by revenue from Kuwait, which held up well despite a strong competitive environment, and simultaneously sustaining the EBITDA margin above 30% for the second quarter in a row. With the acquisition of internet service provider (ISP), FASTtelco, under its belt, as well as the ongoing deployment of more 4G LTE sites, reaching full population coverage, Kuwait operation looks set for a market share recovery, especially in the high-value postpaid segment. While this ushers good news for the company, it is likely to continue to fuel aggressive competition in the market, which is a key concern for other players in the market, and, in a way, caps Ooredoo’s ability to restore its EBITDA margin to a level closer to the 40% mark.
Omar Maher
Karim Riad
Target Price: KWD1.60
Closing Price: KWD1.24
Earnings in line despite softer EBITDA margin; DPS below estimate
Earnings came in at KWD14.5mn vs. a loss of KWD1.4mn last year (which was due to a non-cash impairment-loss on the investment in Tunisia) and in line with our estimate. This was despite a slightly weaker-than-expected EBITDA margin of 34.0% vs. our estimate of 35.5%; we suspect there may have been a one-off gain below the operating line that we did not expect. Revenue was broadly in line with our estimate at KWD174mn, showing some stabilisation Y-o-Y. The Board of Directors recommended a DPS of KWD0.085 for the year, implying a yield of 7% and coming in a mild 6% below our estimate of KWD0.090. Overall, we see the results as unsurprising, with some encouraging signs of stability in Kuwait, but we remain concerned about the macro-economic challenges in Algeria and Tunisia. However, these concerns are currently more than priced in, in our view; the stock offers a compelling upside of 32% to our TP and trades at a FY17 EV/EBITDA of 3.6x, a significant 35% discount to our MENA telecoms coverage average of 5.6x. The stock also offers one of the highest dividend yields across our coverage. We reiterate our Buy rating on Ooredoo Kuwait.
Macro challenges in Tunisia and a weak operation in Algeria…
Revenue from Algeria was 7% lower than we expected, while EBITDA margin surprisingly fell to 28% for the quarter vs. an average of 37% for 9M16 and vs. our estimate of 37%; it is not clear what caused this weakness. In Tunisia, both revenue and EBITDA were broadly in line with our estimate, weakening Q-o-Q, as the country continued to suffer from a worsening macro-economic environment due to the slowdown in tourism.
…but this was partially offset by stable performance in Kuwait
Weakness in Algeria and Tunisia was partially offset by revenue from Kuwait, which held up well despite a strong competitive environment, and simultaneously sustaining the EBITDA margin above 30% for the second quarter in a row. With the acquisition of internet service provider (ISP), FASTtelco, under its belt, as well as the ongoing deployment of more 4G LTE sites, reaching full population coverage, Kuwait operation looks set for a market share recovery, especially in the high-value postpaid segment. While this ushers good news for the company, it is likely to continue to fuel aggressive competition in the market, which is a key concern for other players in the market, and, in a way, caps Ooredoo’s ability to restore its EBITDA margin to a level closer to the 40% mark.
Omar Maher
Karim Riad