JEDDAH, 15 August 2007 — A major investment bank has recommended Saudi Telecom Co. (STC) with a “buy” rating with a target price of SR76.35 per share. The Bahrain-based Securities & Investment Company (SICO) reaffirmed in its report, which was received here yesterday, that despite stiff competition STC is expanding and leveraging its infrastructure and coverage and is expanding outside the Kingdom with an estimated 10 percent of total revenue generated from outside Saudi Arabia by 2010. Despite “buy” recommendation, STC shares fell 1.05 percent to SR70.50 yesterday. The Telecom Index at Tadawul was also down 20.33 points at 2,844.79.
However, shares in other telecom company — Etihad Etisalat — increased by 0.74 percent to SR67.75 yesterday.
The SICO said in a statement that its report aims to provide investors with a better understanding of the company and its future prospects against the backdrop of the region’s burgeoning telecommunications sector. The report is part of SICO’s aim at providing investors with in-depth information and analysis of leading companies in the Gulf Cooperation Council (GCC), in order to make better investment decisions.
Specific to the STC, the report underscored the company’s key strength of bundling services as its key competitive advantage. While STC’s market share is set to decline to 52 percent, the SICO forecast strong customer growth prospects for the company, which it expects will post a 7.4 percent compounded growth in earnings over the horizon.
STC’s attempts to expand outside Saudi Arabia finally seem to be paying off. The report said that the STC could raise as much as $14 billion of debt to pursue its international acquisitions toward its objective of generating over 10 percent of revenues from outside Saudi Arabia by 2010. STC’s recent SR11 billion ($3 billion) acquisition of a 25 percent stake in Malaysia’s Maxis provides it with access to over 14 million customers in Malaysia, India and Indonesia. The deal is expected to add about 5 percent to the STC growth.
The SICO report added at current prices STC trades at a P/E ratio of 11.0x on 2007’s forecasted earnings — a steep discount to both regional and emerging market telecom firms, as well as to Saudi equities (despite a significantly higher dividend yield and profitability).
“We initiate coverage of STC with a target of SR76.35 per share (12.7 percent upside potential) and a buy recommendation. We believe that the possibilities of positive surprises and further upsides are high, with downsides limited by the attractive dividend yield,” the SICO report said.
The Saudi stock market suffered minor losses yesterday after registering hefty gains on Monday. The Tadawul All-Share Index (TASI) fell 16.25 points to 7,929.69 yesterday after rising 141.18 points on Monday.
The stock market turnover also declined slightly to SR9.52 billion yesterday compared to SR10.09 billion on Monday.
Saudi Electricity Co. (SEC) shares declined 2.08 percent to SR11.75.
In the banking sector, shares in Saudi Hollandi Bank, the Saudi Investment Bank and Bank AlJazira dropped yesterday.
In the insurance sector, shares in Malath Cooperative Insurance and Reinsurance Co. jumped by 8.12 percent to SR93.25, the Mediterranean & Gulf Insurance & Reinsurance Co. by 5.19 percent to SR55.75 and SABB Takaful by 5.09 percent to SR206.50 yesterday. Saudi IAIC Cooperative Insurance Co. shares edged higher slightly to SR133.50. However, shares in the Arabian Shield Cooperative Insurance Co. dropped by 4.70 percent to SR71, Sanad Insurance & Reinsurance Cooperative Co. by 4.01 percent to SR71.75 and Saudi Fransi Cooperative Insurance Co. by 3.60 percent to SR181 yesterday.
Meanwhile, the Capital Market Authority (CMA) said the Al-Ahli Takaful Company would start trading on the Saudi stock market from Aug. 18 (Saturday), according to a report posted on the Tadawul website yesterday.
The Ministry of Commerce and Industry approved the establishment of a new joint stock insurance company with the name of Gulf Union for Cooperative Insurance with a capital of SR220 million in Dammam, Saudi Press Agency reported yesterday.
