Telecommunications

The Company

Sonatel is the leading telecommunications operator in Senegal with sales of CFA876bn (€1.3bn) in 2015 and more than 1800 employees. Currently present in four countries, the group has a total customer base of 26m, including 290,000 broadband customers. In terms of market share, Sonatel controls 57% of the telecom market in Senegal, 58% of the growing Malian market, 55% of the Guinean market, and is the largest operator in Guinea-Bissau.

Its dominance in its four key markets has allowed the company to perform well. In 2015 turnover increased by 7.4% to CFA876bn (€1.3bn), compared to CFA816bn (€1.2bn) in 2014. This growth was mainly driven by the mobile segment, which remains the main contributor to revenue (66%) followed by international interconnection (18.9%), mobile data (6.2%), landline (4.1%), national interconnection (3.1%) and other wholesale (1.5%).

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 10.5% to CFA473bn (€709.5m) due to an improvement (+140 bps) in EBITDA margin to 53.8%, compared to 52.4% in 2014.

Lastly, net income amounted to CFA237bn (€355.5m) in financial year 2015, compared to CFA218bn (€327m) in the previous year, a rise of 8.7%. This growth is mainly explained by the excellent results of its subsidiaries. In fact, the contribution of the subsidiaries grew sharply, particularly in Mali, which is now the largest contributor (41.6%) to group net income, followed by Senegal (39.1%), Guinea (17.6%) and Guinea-Bissau (1.7%).

During the first half of 2016, turnover grew (+7.88%) to reach CFA452bn (€678m), mainly driven by the mobile segment. EBITDA recorded an increase of 9.13%. This increase is due to an improvement (+40 basis points) in EBITDA margin to 52.8% vs. 52.4% in the first half of 2015. Lastly, the net income amounted to CFA122bn (€183m), a 11.93% rise. This growth was achieved thanks to the strong performance of the firm’s subsidiaries.

Outlook

Sonatel’s activities are expected to face a number of pressing challenges including a reduction in the average revenue per user and the challenging domestic business environment in all countries of presence, compounded by a high level of competition.

Yet despite the challenges, most indicators point to continued expansion. We believe that the new pipeline of value-added services, including 4G services’ data in Senegal and mobile banking in Mali, should boost operator income. Also, the group should draw additional revenues from the newly acquired market, namely Sierra Leone.

Sonatel’s stock is currently undervalued. In fact, with a price-to-earnings (P/E) ratio of 10.7 and an enterprise value (EV)/EBITDA of 4.4, the stock is trading below the sector average P/E (11.8) and EV/EBITDA (6.6).

Development Strategy

Sonatel has reaffirmed its commitment to maintain the EBITDA margin above 50%. To do so, the group strategy is to increase the revenue from the value-added services (mobile banking and mobile data) and to expand its market.

For the first driver, Sonatel has set an ambitious objective of building a strong mobile banking distribution network in Senegal, being more aggressive in this area in Guinea, while maintaining the trend in Mali. Also, the company will continue to invest significantly in territorial coverage, with a particular emphasis on the continued deployment of broadband networks. 4G has been launched in Senegal in 2016 and should be deployed in the other countries by 2018.

For the second driver, Sonatel aims to extend its footprint through takeovers of mobile operators in the region. The company’s latest acquisition was Airtel-Sierra Leone, the leading mobile operator in the country. With a mobile penetration of around 50%, Sierra Leone offers considerable room for growth. Over the coming years, Sonatel expects to achieve outstanding operational and financial performance by penetrating those markets that hold significant potential. The company also seeks to lower its operating cost by outsourcing services such as its mobile banking platform.