CAIRO: Mid-April meant some heady, if uncertain, days for Egyptian telecom giants Mobinil and Orascom Telecom (OT). Stock price of both rose precipitously on news that a court decision could mean a multi-billion dollar cash infusion for OT, at a time where markets around the world have been suffering as a result of low liquidity. But France Telecom (FT), which was supposed to buy OT's 51 percent stake in the Mobinil holding company, struggled to agree with OT on a price for the deal. Investors swooned when OT Chairman Naguib Sawiris aggressively demanded that FT pay LE 273.26 per share, roughly 40 percent above market price. But FT balked. And now, as April has given way to May, and there are no signs that the deal between the two giants will actually go forward, investors and brokerage companies alike are becoming concerned that the two companies may not represent the gangbuster investment opportunity they were once thought to be. "We have derived a fair target value for the company of LE 189.49 per share, implying a downside potential of 8.9 percent compared to the current market price. We have issued a 'neutral' recommendation for Mobinil, however, due to the ambiguity surrounding the future of the OT-FT deal, until the status of the deal becomes clearer, said Beltone financial economist Reham ElDesoki in a statement. ElDesoki's neutral recommendation for the Mobinil stock is generous compared to where other brokerage firms have listed it. HC Brokerage cited Mobinil stock price's 39 percent increase since the announcement of the possible FT deal as a leading reason for its recommendation to sell shares. "Despite our belief that the stock offers strong fundamentals and the increase in our target price, HC said in a statement, "we downgrade our recommendation to 'sell' from 'buy' due to the stock price rally on speculation that FT might buy the remaining 49 percent stake in Mobinil at a price exceeding LE 200 per share. Unfortunately, these gloomy outlooks come on the heels of a good set of first quarter 2009 financial results for Mobinil, which would have boosted share value more appropriately. The company added just over a million users between January and March of this year. A higher EBITDA (earnings before interest, taxes, depreciation and amortization) margin also contributed to strong results. Some results did slide. Average Revenue per User (ARPU) fell by 16.8 percent but experts agree that it could be partially the result of good strategic moves by the telecom company. HC Brokerage predicted that the decrease in ARPU may have been the result of greater market share of the low-income populations, issuance of promotional discounts, and the move to web-based communication - of which Mobinil is part. All of these figures seemed to indicate that Mobinil was moving in the right direction despite adverse economic conditions, but the faltering OT-FT deal seems to have Mobinil poised for a fall. Adding to the uncertainty is that nobody seems to know either company's end-game in the Mobinil sale. It's unclear whether FT and OT are genuinely committed to the transaction or whether there are other considerations. Either way, both sides have kicked up a lot of dirt in an effort to discredit the other side. OT accused FT of missing two payment deadlines. FT, by contrast, contends that it filed all necessary paperwork and that OT was simply obstructing the process. How and when the process will be resolved remains unclear. More certain, though, at least in the minds of many investors, is that Mobinil stock may be in for a rough month.
