• Earnings beat on stronger-than-expected revenue and margins Earnings stood at EGP1.04bn, a significant 52% above our estimate and 48% above Bloomberg’s consensus, driven largely by: i) stronger-than-expected wholesale revenue; ii) wider-than-expected EBITDA margin on strong retail contribution; and iii) higher-than-expected non-operating items. While we believe this is a good set of results, we reiterate our concerns on the longer-term fundamentals, given our expectation of margin erosion from wage increases and higher interconnect expenses over the longer run. Moreover, we believe visibility remains low regarding the company’s mobile strategy, as some key variables remain unclear to investors, such as the price and terms of the 4G and mobile licences, the amount of capex that would be required to deploy the mobile network, and the fate of the VFE stake, amongst other things.
• Revenue growth driven by strong data demand in retail segment Total revenue came in at EGP3.3bn, up 9% Y-o-Y on: i) 14% Y-o-Y growth in retail revenue as Home service revenue rose 15% Y-o-Y, supported by 39% Y-o-Y growth in data revenue; and ii) 12% Y-o-Y growth in Enterprise Solutions. Moreover, the Domestic Wholesale business unit’s revenue grew 16% Y-o-Y, boosted by network growth for both mobile network operators (MNOs) and internet service providers (ISPs). Management said TE is reaping the benefits of the network modernisation, reflecting positively on data revenue growth.
• Margins boosted by project-related change in accounting treatment Management explained that the increase in EBITDA margin was driven by a change in accounting treatment for operating costs linked to certain projects. These costs are now treated as capex, resulting in higher capex/sales, but reducing opex and leading to higher margins. This is despite retail revenue contribution not changing significantly in recent quarters. TE has also improved payment terms for certain procurement instalments, bringing about a reduction in technical support costs.

Omar Maher
Karim Riad