OT, Etisilat, Saudi's Zain results 'disappointing': Beltone

The leading Arab telecommunications companies see profits taper off for the fourth quarter of 2010

The net loss incurred by Egypt's Orascom Telecom (OT) net loss in the last quarter of 2010 has been described by Beltone Financial as a disappointment.
"We are disappointed by the continuous instability in OT's bottom line performance, despite the modest q-o-q improvement in revenues of core GSM operations, namely Algeria, Pakistan and Bangladesh, in 4Q2010," the release, issued today, reads.
The leading telecommunications company, owned by Egyptian billionaire Naguib Sawiris, yesterday released its FY2010 results, ending in December, in which revenues reached $3,825 million, an increase of two per cent from the previous year.
Revenues in 4Q2010 came in at $980 million, a q-o-q increase of one per cent. Net income for the year reached $743 million, an increase of 134 per cent compared to FY2009. However, the fourth quarter's performance was a complete contrast from that of the third period. In 4Q2010 OT recorded a net loss of $178 million, compared to a net profit of $939 million in 3Q2010.
"The reported net loss in 4Q2010 was a disappointment versus our net profit estimate of $56 million in 4Q2010, since Tunisiana was excluded from FY2010 results and given that OT's bottom line was adversely affected by several unforeseen impairment losses, worth $128 million in total," the report commented.
The company announced yesterday that the figures exclude Tunisiana, part of OT before it was sold in January to Qatar's Qtel.
"4Q2010 revenues were 4.3 per cent below our estimate of $1,023 million and FY2010 revenues were 8.3 per cent lower than our forecast of $4,145 million, while the reported EBITDA came in 8 per cent lower than our estimate of $434 million for 4Q2010 and 11.2 per cent lower than our forecast of $1,762 million for FY2010," the investment bank added.
The report has attributed the losses recorded by OT to various factors, including Telecel Globe's investment in Namibia, Med Cable in Algeria and the financial receivables related to North Korea.
Beltone has, however, maintained its “Buy” recommendation for OT (with a target price of $5.39 per GDR, L.E6.36 per local share, implying a significant upside potential of 63.3 per cent), due to "the strengthening of the company's financial position (after the refinancing process is completed), as well as Vimpelcom's support in negotiations with the Algerian government and its sharing in the losses that could arise from Djezzy's sale."
This recommendation is, nevertheless, still rated as “High Risk” due to the uncertainty regarding the future of the Algerian operation, Djezzy (dependant on the flow of negotiations with the Algerian government and its offer for Djezzy).
OT is currently trading at a notable discount to its peers, with an EV/EBITDA FY11e of 3.0x against an average of 5.5x for its MENA telecom peers.
The report by Egypt's leading investment bank also expresses dissatisfaction with UAE's Etisalat's 1Q2011 results.
"The actual reported top line figure came in below our estimated revenues for 1Q2011, of AED 8,201 million ($ 2,233)," Beltone commented. "Consequently, the reported net income was 5.2% lower than our expectations of AED1, 911 million ($520.269), mainly due to deterioration in EBITDA (earnings) margin in 1Q2011.
Etisilat's Actual mobile subscribers have also came in line significantly below Beltone's estimates of 7.8 million at the end of March 2011.
"Etisalat is not just failing to secure new subscribers in the UAE market, but it is also failing to retain existing ones (with a loss of 330,000 subscribers in 1Q2011 and 50,000 in 4Q2010)," Beltone said. "We view (these results) as a negative sign for the operator's performance in its local market.”
Saudi's Zain also released yesterday its 1Q2011 results, recording revenues of SAR1,484 million, up 36 per cent year-on-year from the SAR1,094 million earned in 1Q2010 but down 14 per cent quarter-on-quarter from the SAR1,728 million for 4Q2010. Its operating loss (EBIT) during 1Q2011 was SAR233 million, compared with SAR435 million in 1Q2010.
Despite reduced losses of SAR532 million, down from SAR662 million a year ago, the results were below expectations, meaning Zain joins the ranks of low-performing telecommunications companies in the Arab world.
"We are disappointed by Zain Saudi's results, which came in notably worse than our estimates," said the report. "We reiterate our concern about Zain Saudi's future operational performance in the market, even though it is still a start-up operation, mainly because of its weaker than expected ability to face competition from the two incumbent operators; namely Saudi Telecom Company (STC) and Etihad Etisalat (Mobily)."