• Dividend increase is a positive surprise After initially announcing a disappointing DPS of EGP0.45 for 2015, TE hiked it to EGP0.75 above 2014’s EGP0.56 and our estimate of EGP0.50. This was a positive surprise following two annual dividend cuts in a row. We note that TE has not yet received dividends from Vodafone Egypt (VFE). Such an agreement would likely allow TE to increase its DPS significantly via a one-off super dividend, in our view, which would be a major stock catalyst. We still believe this is most likely to occur in 2016. The implied 2015 yield is an attractive 10.5% and we believe this is one reason why the market interest is high in the stock, especially given its attractive valuation, in our view. The shareholders will vote on the proposed dividend on 23 March. We reiterate our Buy rating on TE.
• TE hints at possible capital structure improvement TE said it will seek alternative means to finance its capex programme, which we believe implies potential increased leveraging. We believe this is a positive move as it will reduce its cost of capital and increase liquidity in the balance sheet until VFE resumes much-needed dividend payments. Moreover, TE will start an early retirement programme that could lead to some margin improvement, but this will happen in the long term. It did not quantify the size of the programme or the timeframe.
• In-line earnings; data drives strong revenue growth Earnings of EGP863 million, exactly in line with our estimate, were boosted by a strong contribution from VFE (+68% Y-o-Y, +26% Q-o-Q). Revenue was in line, up 15% Y-o-Y and 18% Q-o-Q due to strong growth across most business units. Retail revenue was backed by impressive growth in the Enterprise business unit on strong demand for data services from the banking and governmental sectors. Domestic Wholesale benefited from strong demand for infrastructure and backhauling services from local telecom operators. The EBITDA margin improved on a more favourable revenue mix towards higher-margin revenue streams.

Omar Maher
Karim Riad