CAIRO: "We don't have a very positive outlook on the telecom market, Suha Najjar, managing partner at Cairo-based investment bank Pharos Holding, said Tuesday. Analysts at Pharos Holding held a roundtable with reporters to discuss their outlook for the telecom industry in Egypt, where they said that their most optimistic predictions would show a 0 to 1 percent growth in the sector this year. The discussion came at a time of uncertainty given the global slowdown and because of confusion surrounding the Orascom Telecom (OT)/Mobinil deal with France Telecom (FT). Pharos did an analysis and comparison of two groups of countries, one developed and the other developing, over a 10-year stretch to see how the telecom industry fared through the peaks and valleys of economic growth. On the positive side, they concluded that growth in the industry spending was virtually unaffected by swings in the economy. "The telecom sector is not unrelated to the economic condition, but it has its own set of factors, said Delilah Heakal, vice president and telecom expert at Pharos. "In developed countries over 10 years, telecom expenditure relative to GDP has been increasing regardless of the economic condition of the country itself. Heakal also discussed how in recent years growth in the mobile phone sector has surpassed landline growth. "Landlines versus mobile phones: landline expenditures against GDP has dropped because the competition of the mobile sector, she said. Aiding the mobile sector has been the increased fusion between web services and mobile services. Mobile phones have become common and have been replaced by web-based devices as the emerging technology. "This proves that mobile phones are not a luxury. They are a utility, said Heakal. Heakal evaluated three of the major telecom companies in Egypt - Telecom Egypt, Mobinil, and Orascom Telecom - discussing Pharos' take on each company's fundamentals, stock prices, and future. For Telecom Egypt, Heakal said she believes the stock is trading at a fair price. Heakal valued the price, which is currently trading around LE 15.6 per share, at LE 15.8. "There are good signs about Telecom Egypt that make it a safe investment, she said, "a healthy balance sheet and cash coming from Vodafone. She did say, however, that there is some concern over the company's dependence on revenue from fixed-line services. This is only partially offset by the company's Vodafone revenue. That Mobinil produced a strong 10 percent earnings increase over the first quarter of 2008 was not enough for Heakal to argue that the company is significantly over-valued. Mobinil's stock price is currently valued at LE 203 per share, but Heakal said that Pharos values the fair price at LE 162.4. She put much of blame for the over-valued share price over the recent news that OT might sell out its share in the company and noted that the inflated price didn't detract from the fact that the fundamentals of the company are strong. Heakal noted Mobinil's strong liquidity position in particular. Unlike shares in Mobinil, OT's stock price is under-valued, Heakal argued. The stock is currently trading at around LE 31.5, though Pharos believes it's fairly valued at around LE 34.3. Heakal said one of the biggest risks to OT is in currency exchange. "OT's operations are in more than five markets, she said. "They report their profits in dollars, and there is a currency risk because they deal in so many different currencies. OT's two riskiest markets are Pakistan, which is in a state of significant political upheaval, and Egypt, because of the possible Mobinil deal. Heakal said that Pharos' valuation of OT was determined assuming no sale of Mobinil. She also noted that if the Mobinil sale were to go through, the company's loss of long-term income and gain of a short-term cash infusion would roughly cancel each other out in a new valuation. For each of the three companies' stocks, Pharos issued a "hold' recommendation.
