• Hefty FX gain drives earnings beat Earnings stood at EGP1.2bn, a significant 43% ahead of our estimate and 77% ahead of Bloomberg consensus estimate, primarily due to a sizeable FX gain of cEGP383mn, we calculate, versus our FX gain estimate of EGP87mn. We had based our estimate on our expectation of TE’s USD-denominated cash – which is undisclosed – but the better-than-expected FX gain tells us TE has a larger cash balance in USD than we thought. We note that nearly 30% of TE’s revenue base is USD-denominated. Excluding the FX gain, earnings would have been only marginally ahead of our estimate.
• Remain Buyers on cheap valuation and attractive yield We believe the results are good overall and reiterate our Buy rating on TE, one of our tactical picks for the 1Q16 earnings season, as we expected it to benefit from the EGP devaluation. We believe the stock’s recent strong performance was largely due to VFE’s dispute resolution, in line with our expectation, and to a lesser extent the potential award of a 4G mobile licence. TE trades at a high dividend yield of 13% in EGP-terms, and at 6.4x 2016e earnings vs. its 3-year historical forward P/E of 7.8x and vs. c11.2x for MENA telcos under our coverage. Currently, the market’s implied value for the fixed-line operation is still conservative at cEGP1.3bn vs. our valuation of EGP8.3bn, implying a 2016e P/E of 1.1x vs. our estimated 7.4x.
• What do we know about the 4G licence so far? Only that: i) the Cabinet authorised the regulator to launch the licencing process; ii) the regulator will draw up the framework in two months; iii) each licence should cost cEGP2bn; and iv) four licences up for grabs for mobile operators and TE. We remain wary about a fourth mobile operator in Egypt, given the relative saturation, in terms of subscriber growth and tough macro conditions. Yet, TE aims at launching with a rational capex plan, deploying its own infrastructure in key areas only while using competitors’ networks elsewhere. This may lead to capex savings, we think, but we await details about the licence price and required capex cost.

Omar Maher
Karim Riad