Emirates Telecommunications Corp.: Telecoms

THE COMPANY: Emirates Telecommunications Corporation, or Etisalat, is a leading multinational telecoms operator, with a presence in 17 countries spread across the Middle East, Africa and Asia. With such a wide presence, Etisalat now has access to a population of more than 800m. Etisalat’s international presence started in earnest in 2004 when it won its second mobile licence and first 3G licence in Saudi Arabia. The next several years would see the operator embark on widening its geographic reach and expanding its subscribers from 4m in 2004 to 172m, by end-June 2012. In the UAE alone, Etisalat had approximately 6.8m mobile subscribers, 1.13m fixed-line subscribers and 780,000 internet subscribers as of June 30, 2012.

Etisalat has been a leader in technological advances (by providing next generation networks for both mobile and fixed line) and telecoms infrastructure (by constructing a fibre optic system that could stretch to the moon and back). Such expertise has enabled Etisalat to capture significant market shares in its various geographic areas, most notably in the UAE, Egypt and Saudi Arabia. Etisalat is 60.03% owned by the UAE government through the Emirates Investment Authority (the investment arm of the UAE federal government focusing on international equities as well as on fixed-income markets) and 39.97% by the public.

FINANCIAL PERFORMANCE: Profits for the first half of 2012 rose close to 8% as domestic revenues were complemented by stronger growth in some of Etisalat’s international markets. Revenue growth was mainly driven by customer acquisition and growth in the mobile data segment. While domestic revenues did see a bit of a decline year-on-year, revenues from international markets rose by almost 18%. Leading the growth was its African markets with revenues that rose 16%, Egypt with 15% growth and Asia at 10% growth. Following such encouraging profit numbers from its international operations, Etisalat will now focus on crating value in high- population, high-growth markets that include Saudi Arabia, Egypt, Nigeria, Pakistan and Afghanistan.

Early in 2012 Etisalat announced that it would stop its mobile phone services in India, Etisalat DB, as part of the company’s previous decision to move out of the country. Etisalat’s decision came after the ordering of the Indian Supreme Court in February to cancel 122 licences for 2G phone services, which were issued to several companies in 2008, following complaints of irregularities in their allotment. Of these 122 licences, Etisalat DB held a total of 15.

Recently, Etisalat finalised the sale of its 9.1% stake (775m shares) in Indonesian mobile operator XL Axiata, capitalising on the recent rally in the latter’s share price. The gross proceeds from the sale of the shares in XL Axiata mounted to Dh1.87bn ($508.98m). Etisalat retains a 4.1% ownership stake in XL Axiata.

As of June 30, 2012, Etisalat held Dh10.55bn ($2.87bn) in cash, and had tangible assets of Dh60.83bn ($16.56bn). Its credit ratings were affirmed by international ratings agencies Standard & Poor, Moody’s and Fitch at AA-, Aa3 and A+, respectively. Etisalat is now the highest overall rated telecoms company in the GCC and the fourth-highest rated telco in the world.

SHARE PRICE PERFORMANCE: Year-to-date (YTD), shares of Etisalat are up by more than 5%, hitting a YTD high of Dh10.05 ($2.74) per share in June 2012. This coincided with the news of its investment grade rating affirmation by Fitch. Since hitting a low of Dh8.50 ($2.31) back in April, Etisalat’s shares have gone up by 14%. Apart from the telco’s strong credit ratings, speculations on the lifting of the current ban on foreign ownership as well as the announced sale of its 9% stake in Indonesia’s Axiata supported investors’ interest in the stock. The sale of Etisalat’s stake in Axiata amounted to $510m. The telco plans to use the proceeds of the sale to finance its network expansion.

Over the medium term, Etisalat desires a support level of Dh8.50 ($2.31) per share. Resistance is seen at Dh0.25 ($0.07) per share. Note that these sentimental barriers were spotted as of September 30, 2012 and based on a closing price of Dh9.69 ($2.71) per share.