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27 June 2014
African Telecoms
INDUSTRY UPDATE
Emerging Markets Telecom Services
Our detailed tariff review across Africa confirms our preference for exposure to
Nigeria (OW MTN) and Kenya (OW Safaricom). In these markets, relatively stable voice
pricing will support real revenue growth and margin expansion, in our view. In
contrast, pre-paid in South Africa is in a de-risking phase. We see market EBITDA
contracting in 2014 and remain UW Vodacom. In North Africa, wed draw attention to
Morocco, where the market is beginning to lap severe price cuts.
NEUTRAL
South Africa MTN fighting for share, spin-down risk increasingly apparent. MTN
has a market share problem in prepaid, and has halved headline rates to address this.
For example, Vodacom and MTN reported almost equivalent prepaid ARPU revenues at
4Q12 - the split is now 57:43. We see this revenue divergence continuing in 2Q14, as
the steep price cuts negatively impact MTN. From a market perspective, we see the
pricing environment vulnerable to further pressures until MTN stabilises minute share.
Separately on contract, Cell C is the only operator to introduce new post-paid tariffs
(ChatMore) following the pre-paid rate cuts.
Absa, Johannesburg
Nigeria pricing stability, ongoing regulatory scrutiny. The pricing environment has
remained relatively stable in 2Q14, with operators continuing to reduce the range of
tariffs they offer. As MTNs 1Q14 highlighted, this should support an above inflation
growth outlook. Also market net adds for April show a healthy rebound (2.1m), with
MTN taking more than half. On the regulatory front, press reports (Thisday, 23 June)
highlight the ongoing market pricing oversight by the NCC. While regulatory
interference with pricing tools is a potential negative, it is arguably offset by the NCC
supporting overall price stability in the market.
Kenya stable, M-Pesa regulation in the cross-hairs. The headline pricing environment
in Kenya remains stable, with focus currently on potential regulatory interference in MPesa. This potentially presents headline risk, but as we set out in the note: 1) M-Pesa
has thus far proved relatively inelastic to price pressure, and 2) Safaricoms market
share relevance is arguably more important than legal exclusivity. If we assume the MPesa business is worth 20x OpFCF, this would imply the rump telecom business is
trading on just 10.5x.
Stabilising trends in Morocco? Morocco mobile has witnessed aggressive voice price
erosion over the last three years. The move to per second billing on 1 June 2013
contributed to this, and will be lapped this quarter. Bonuses by competitors like Inwi,
show that price intensity does however remain high. Equally in Senegal, bonuses
remain prevalent with Millicom offering 100% credit on its flagship bundled offer. In
Egypt, we see the plethora of offers from incumbents potentially giving Telecom Egypt
an opportunity to differentiate with simplicity rather than price.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside
the US who are not registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 28.
Unchanged
Emerging Markets Telecom Services
JP Davids, CFA
+27 10 245 4240
jp.davids@barclays.com
Maurice Patrick
+44 (0)20 3134 3622
maurice.patrick@barclays.com
Barclays, London
David Kaplan
972.3.623.8747 / +1 212 412 1443
david.kaplan@barclays.com
Barclays, London
Roman Arbuzov
+44 (0)20 7773 1320
roman.arbuzov@barclays.com
Barclays, London
CONTENTS
South Africa MTN responds to share loss ......................................................................................... 3
Key themes for South Africa .............................................................................................................. 3
Prepaid pricing Competitive intensity heating up, headline tariffs cut ................................. 3
Postpaid Out of sync with prepaid? .............................................................................................. 5
Nigeria Pricing hiatus continues .......................................................................................................... 8
Key themes for Nigerian pricing: ...................................................................................................... 8
MTN Competitive tariffs .................................................................................................................. 8
Bharti Bonus offers prominent ....................................................................................................... 8
Etisalat Targeted smartphone pricing .......................................................................................... 9
Glo Remains most aggressive on headline basis ....................................................................... 9
Other African Markets Bonuses and bundles ................................................................................. 11
Key themes from this section: ......................................................................................................... 11
Egypt Spoilt for choice ................................................................................................................... 11
Operator by operator telco pricing trends:................................................................................... 12
Kenya M-Pesa in focus .................................................................................................................. 15
Operator by operator telecom pricing trends .............................................................................. 15
M-Pesa regulation in the cross hairs ............................................................................................. 16
What is Safaricoms telco business trading on? .......................................................................... 17
Morocco Promotions used to manage down pricing ............................................................. 18
Operator by operator pricing trends .............................................................................................. 18
Senegal high headline pricing masks aggressive promotions .............................................. 19
27 June 2014
Post-paid spin-down risk building. The focus on headline rates in prepaid will likely
put renewed focus on the value of contract rates. Cell C is the only operator to introduce
new post-paid tariffs (ChatMore), since pre-paid rates were cut. MTNs SIM-only tariffs
in particular have a questionable value proposition vs. their prepaid 60c promotion.
FIGURE 1
South Africa Mobile Voice prices, ZARc
FIGURE 2
South Africa Mobile Outbound minute growth, %
160
38.0
140
28.0
120
18.0
100
80
8.0
60
-2.0
40
-12.0
20
1H09
1H10
1H11
1H12
Vodacom
1H13
MTN
1H14E
MTR rate
-22.0
1H07 1H08 1H09 1H10 1H11 1H12 1H13 1H14E
Vodacom
MTN
FIGURE 3
South Africa Wireless Subscriber share, %
FIGURE 4
South Africa Wireless Service revenues growth, %
100.0
90.0
15.5
16.5
16.0
15.7
14.9
35.9
38.0
37.3
36.6
35.8 37.6
14.9
16.8 18.6
11.0
80.0
70.0
60.0
36.5
6.0
35.1
50.0
1.0
40.0
30.0
20.0
48.6
45.0
45.2
44.5 44.1
-4.0
10.0
0.0
1Q10
1Q11
Vodacom
1Q12
MTN
Cell C
1Q13
Telkom
1Q14
-9.0
2Q09
2Q10
2Q11
Vodacom
2Q12
2Q13
2Q14E
MTN
27 June 2014
Following the 1 April MTR cuts, MTN has ramped up price competition in the prepaid
segment. Unlike Vodacoms strategy of recent years, MTN targeted its headline pricing
(R1.20min to R0.79). MTNs April cut was matched by Vodacom and then undercut Cell C
3
In late April Vodacom introduced a promotional 79c tariff (ending 14 July). This was
followed by a Chat for 20 which had an effective on and off-net tariff of 50c. This
latter tariff complemented the companys micro/power bundles (R2 for 10 on-net
minutes, R4 for 60 on-net minutes).
The companys three headline prepaid tariffs remain unchanged including the
Anytime per Second tariff (billed at R0.02 per second), Daily Free Calls and Vodacom
for less. Also it continues to offer its My5 bundles which are geared to CUGs. The
Everyday Extra provides for bonus voice time based on recharge values. We include
this in tabular format below:
FIGURE 5
Vodacom everyday Extra tariff bonus minutes
Recharge value
Bonus minutes
R12 - R28,99
R5
60 minutes
R29 - R54,99
R9
150 minutes
R55-R109,99
R15
300 minutes
R110+
R25
600 minutes
Source: Company websites (*) US$ equivalent of Rand pricing can be done at a ratio of $1: R10
MTN Halves headline tariff. MTN has been the price aggressor in 2Q14. As noted
above, the company cut its headline tariff to R0.79 in April (currently effective until 31
August) and then also introduced a R0.01/sec promotion from 1 June to 31 August.
This new pricing meant that its PAYG on-net/all-net/off-net fell away. The in bundle
rates for the R7-35 PAYG bundles were also cut from R0.99 to R0.79.
FIGURE 6
MTN PAYG bundles
Price/value
Validity
In-bundle rate
Free on-net minutes
Free SMS
Free data
MTN PAYG R7
R7.00
2 days
R0.79
12
5
5MB
R12.00
2 days
R0.79
15
15
10MB
R17
3 days
R0.79
29
30
30MB
R35
42 days
R0.79
66
100
75MB
Cell C Responds with 66c tariff. On 13 May Cell C cuts its headline 99c tariff to 66c. In
its release it noted that the company has been focused on providing customers with the
best value in the market. The company continues to offer its 99c tariff and its
Supacharge promotions. On 1 May the company stepped up the Supacharge bonuses
with low end top-ups getting a double bonus and triple at the higher end. This
promotion lasts under 31 July. When introduced in February 2013, the bonus had been
on a 1:1 basis.
27 June 2014
Telkom Mobile Focus on bonuses. Telkoms prepaid offers are unchanged from
1Q14. The SIM-Sonke tariff (introduced July 2013) cut on-net rates to as low as
R0.29/min and off-net rates to R0.75/min, making this tariff the cheapest on the market
at the time of introduction. Its bonus offers are also unchanged since 1Q14:
R5-R19 allows for one night (7pm to 7am) free on-net calls, R20 allows free on-net calls
for seven days (between 7pm and 7am). A flat fee of R5 will allow one day of free on-net
calls and R20 allows one week of free on-net calls. The Telkom More tariff also remains
unchanged at a flat rate of R1.90/min, R0.50 per SMS and R1/MB, and is subject to
100% bonus on airtime recharges.
Vodacom Attractive product range, but voice pricing is high. In addition to its Smart
and Red tariffs that have been in the market for some time, Vodacom launched its
uChoose tariff range at the end of 2013. This is offered on two bases: 1) uChoose Smart
is offered on similar terms to the current Smart tariffs, i.e. S, M, L, and XL. This tariff is
offered in denominations of R129-R579 (SIM-only) and can be structured with or
without a handset. This is a bundled tariff, with the added benefit that customers can
recharge. Top-up voice time is available from as low as R6 (60 minutes) to R12 (includes
voice, SMS and data), while data bundles can be topped-up from R99 (500MB) to 2GB
(R249). Finally, customers can choose to add airtime to be billed for later, or airtime
advance, which allows immediate recharge to be deducted off the next recharge.
Secondly, uChoose Flexi provides for a comprehensive tariff range where the customer
wants voice only. The low end SIM-only package retails for R29/month and at
R39/month with a handset. At the top end the Flexi 750 is retailing for R559/month on
a SIM only basis (R750 worth of airtime) and for R769/month with a S4 mini.
MTN post-paid not impacted by prepaid pricing. MTN has not changed its MyMTN
Choice or MTN Anytime TopUp (hybrid) in 2Q14. As is clear from the table below the
voice pricing element is not compelling relative to the prepaid segment.
FIGURE 7
MTN Post-paid tariff structure
MyMTN Choice MyMTN Choice MyMTN Choice MyMTN Choice MyMTN Choice MyMTN Choice MyMTN Choice
25
50
100
200
350
500
1000
Bundled minutes
25
50
100
200
350
500
1000
On net-voice
R1.30
R1.30
R1.20
R1.20
R1.00
R1.00
R0.90
Off-net voice
R1.70
R1.70
R1.60
R1.60
R1.40
R1.40
R1.20
R1.00
R1.00
R1.00
R1.00
R1.00
R1.00
R1.00
R0.50
R0.50
R0.50
R0.50
R0.50
R0.50
R0.50
R35.00
R70.00
R135
R270.00
R400.00
R570.00
R1000.00
SMS
Monthly subs
Cell C. Along with its 66c tariff, Cell C introduced a new post-paid tariff called ChatMore.
Importantly, this offers voice rates of R0.79/min both on and off-net, more consistent
with headline pricing in prepaid. The low end Standard tariff has no monthly
commitment and appears more compelling than Vodacom and MTN offers. The
27 June 2014
ChatMore 200
ChatMore 400
200
400
Inclusive voice
Inclusive data (MB)
On and off-net voice
150
300
R0.79
R0.79
R0.79
SMS
R0.50
R0.50
R0.50
Data/MB
R0.99
R0.99
R0.99
R0
R159
R319
Telkom Mobile. Tariff structures remain unchanged at Telkom. It has two tariffs at the
lower end in addition to its other Smart tariffs: SmartPlan 50, offering 50 mins voice,
75MB data and 50SMS for R49/month (SIM-only tariff), and the SmartPlan 100, offering
100 mins of talktime, 150MB of data and 50 SMS for R99/month (SIM-only tariff). All
Smartplan tariffs include unlimited on-net calls for 12 months. The tariff for the
completely unlimited product is now R1,599 (was R1,199).
27 June 2014
MTN
Cell C
Telkom Mobile
Tariff name
uChoose Flexi 50
My MTNChoice 25 (^)
Straight-Up 50
Smart Plan 50
39
59
89
79
SIM-only tariff
29
35
50
49
Voice, mins
50
25
50
50**
SMS
50
50
Data, MB
50
Smart Plan S
ChatMore 200
219
259
289
239
SIM-only tariff
129
135
159
99
Voice, mins
75
100
200
100**
SMS
200
50
Data, MB
200
150
Tariff name
Smart Plan L
ChatMore 400
599
639
469
N/A
SIM-only tariff
399
400
319
319
Voice, mins
250
350
400
250**
SMS
500
Unlimited
Data, MB
500
300
500
Vodacom
MTN
Cell C
Telkom Mobile
Tariff name
Red VIP
MTN Sky
Infinity Select
Unlimited Voice
1,999
1,999
1,399
1,599
SIM-only tariff
1,629
1,699
999
1,599
Voice, mins
Limitless
Unlimited
Unlimited
Unlimited
SMS
Limitless
Unlimited
Unlimited
Unlimited
2 000
3 072
Unlimited on-network
Data, MB
27 June 2014
Data bundled in, bonuses still prevalent Operators continue to bundle data into
airtime packages. Bharti/Glo offer lower voice prices for 200MB of data usage. Etisalat
provides the most transparent pricing for the smartphone segment.
FIGURE 10
Nigeria Wireless Voice market share by subscribers, %
FIGURE 11
Nigeria Wireless Data market share by subscribers, %
100
100
90 1
2
80
22
70
11
13
13
13
20
19
18
18
19
19
20
18
60
50
23
23
22
22
22
21
21
21
21
15
20
18
18
21
70
18
3
13
2
60
15
3
14
1
61
64
66
64
80
18
18
16
16
17
17
11
10
10
10
20
23
24
23
20
51
51
50
51
50
40
40
30
30
20
17
90
40
41
44
44
45
43
42
42
46 45
MTN
Source: NCC
53
10
10
0
1Q09
20
1Q10
1Q11
Globacom
1Q12
Bharti
0
Jul 12
1Q13
Etisalat
Nov 12
MTN
Other
Mar 13
Glo
Jul 13
Etisalat
Nov 13
Mar 14
Airtel
Source: NCC
One rate to MTN network MTN maintains a flat call rate of 60k/sec (was 58k) to all
numbers across the MTN Group Network. When compared to other networks, calls to
numbers outside of Nigeria are billed according to zones.
Tariffs appear competitive, reduces CUG bonuses MTNs Smooth Talk package tariffs
remain stable on 3Q13 at 15k/sec. The company has removed the bonuses for CUG on
its Smooth Talk and Tru Talk packages (e.g. in 1Q14 customers received N300 to call
two numbers on a recharge of N200 or more). Customers do however get 10MB of free
data for >N100 top-ups.
Bundling of data MTN offers data as an incentive to drive up spend. For example MTN
continues to promote data bonuses (10MB) on top ups of >N100.
27 June 2014
Bonus offers prominent The Talk More tariff now includes >100% bonus across its
tariff range. Two additional offers were introduced in 4Q13: NGN60 provides NGN120
value in voice/SMS/data, whilst NGN100 offers NGN240 in voice/SMS/data.
Offers dynamic pricing and bonuses Like MTN, Etisalat offers a dynamic pricing tariff
TalkZone. And like Bharti there are bonuses on airtime for top-ups.
Clear smartphone pricing Etisalat has targeted smartphone plans. For N2000/$12 a
user gets 500MB of data and calls at 20kk/sec.
Three packages removed Glo is no longer pushing its Gista (10k/sec after first
minute), Hi Flier and Flexi (dynamic pricing).
27 June 2014
MTN
Bharti
Bharti
Bharti
Bharti
Bharti
Talk More
2 Good classic
Club 10 Padis
One SIM
NA
N/A
NA
NGN5.00
N/A.
N/A.
20k/sec
N/A
NA
NA
40k/sec
40k/sec
CUG
Calls billed at
Calls billed at
58k/sec to any 58k/sec to any
MTN Group
MTN Group
network numbers network numbers N/A
NA
NA
7.2k/sec
12k/sec and
NGN1.00/ SMS
On-net voice
15k/sec
20k/sec
N/A
18k/sec
18k/sec
20k/sec
40k/sec
N/A
30k/sec
18k/sec
30k/Sec
40k/Sec
Free midnight
calls to CUG #s.
Free 10MB data
for a recharge of
N200 or more.
1) 100% bonus
on all recharges
of NGN100 and
above. 2) Calls
between 00:00
and 04:30
charged at
10k/sec
Off-net voice
15k/sec
20k/sec
Notes
10MB of free
data for N100
top-up. Free
midnight on-net
calls.
10MB of free
data for N100
top-up. Free
midnight on-net
calls.
Etisalat
Etisalat
Etisalat
Glo
Glo
Glo
Easy Cliq
Easylife
Easy Starter
G-BAM Hi 5ive
Talk Free
Bounce
N/A
N25
NA
NGN1000
N/A
40k/sec
N/A
NA
NA
N/A
5k/sec to 5
numbers
NA
N/A
N300 free
credit every
week to call 2
special Etisalat
numbers
anytime. Based
on N200 top-up
20k/sec
18k/sec
10k/sec off peak
15k/sec
15k/sec
20k/sec
18k/sec
10k/sec off peak
18k/sec
15k/sec
N12/minute for
local locations
called most
frequently. 3)
Free 5MB in
addition to free
100MB for
recharges in
excess of N100.
Bundled 150
mins and 150
SMS monthly
CUG
On-net voice
Off-net voice
Notes
10k/sec
20k/sec
30k/sec
1) On-net calls
between 12:304:30 free. 2) Free
data on Etisilat
mobile portal
For bundles:
N300 = 18k/sec
N500 = 17k/sec
N1000 = 16k/sec
5k/sec
12k/sec
12k/sec
Free on-net
midnight calls.
Free SMS for
every one sent
27 June 2014
10
Kenya: with headline pricing stable in the quarter, focus shifts to the regulatory scrutiny
around M-Pesa. This could include Safaricom having to open up its M-Pesa distribution
network, and/or forcing interoperability between the services.
Morocco: Moroccan pricing remains competitive, although positively we did not see a
notable step down in voice pricing in the quarter. Maroc introduced free SMS/Data into
its voice bundles to encourage take-up in prepaid.
Senegal: Bonuses and bundles remain prevalent in the market. Tigo is currently offering
a 100% bonus on its flagship bundled tariff.
FIGURE 13
EM Telecoms Outbound pricing vs. outbound usage
8.0
South Africa
7.0
Senegal
6.0
Ghana
Nigeria
5.0
4.0
Kenya
Czech
Brazil
Poland
Morocco
Turkey
3.0
Russia
2.0
Egypt
1.0
India
Bangladesh
0.0
0
50
100
150
200
Outbound MOU
250
300
350
400
Source: Company data, ABSA Capital estimates, NCA, CCK, ARTP, ANRT
27 June 2014
11
FIGURE 14
Egypt Wireless Market share, %
FIGURE 15
Egypt Wireless Cumulative net adds, 000s
100.0
40,000
90.0
35,000
80.0
44.6 44.1
42.5
70.0
30,000
25,000
60.0
20,000
50.0
40.0
30.0
35.0
34.8 34.7
34.9 34.9
34.6
15,000
10,000
20.0
16.7
23.2 23.1
22.8
5,000
EtisalatMisr
Mobinil
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14E
3Q14E
4Q14E
4Q14E
3Q14E
1Q14
2Q14E
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
4Q11
3Q11
2Q11
4Q10
1Q11
12.3 16.0
0.0
1Q12
10.0
Etisalat Misr
Vodafone
Mobinil
FIGURE 16
Egypt Outbound yield, EGP
FIGURE 17
Egypt Outbound yield growth, %
50.0
0.0
40.0
-10.0
30.0
-20.0
20.0
-30.0
10.0
-40.0
0.0
-50.0
Mobinil
Source: Company data, Barclays Research
Vodafone
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
10.0
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
60.0
Vodafone
Mobinil
Vodafone
Mobinil in 2Q14 the company introduced new pre-paid plans for data focussed
customers. For EGP7/week a user gets 400MBs and access to call rates of 14PT/min.
The company also introduced a new Smartphone 100 package which looks better value
than the 150 it replaced. For EGP100/$14 a user gets 1500 on-net/250 off-net/100SMS
and 1GB of data.
27 June 2014
12
Flex daily
Flex weekly
Flex Control 40
Access fee
3LE
10LE
46LE
52LE
103.5LE
100
300
1400
1500
3000
60
150
19PT/min
19PT/min
19PT/min
19PT/min
19PT/min
SMS
30PT/sms
30PT/sms
19PT/SMS
19PT/sms
19PT/SMS
Data per MB
1LE/MB
1LE/MB
19PT/MB
19PT/MB
19PT/ MB
Prepaid
Worry Free
Hakawy 14PT
Set-up fee
NA
11PT
11PT
16PT
N/A
1LE
N/A
1.5LE
2.5LE
1LE
N/A
N/A
14PT/min
19PT
19PT
14PT
Inclusive airtime
N/A
N/A
For 365LE/
annually the
above rate
applies.
Minute use is
restricted to
between
midnight and
6pm, with
100 minute
limit daily.
SMS rate
14PT
N/A
N/A
N/A
N/A
N/A
Data rate
14PT
N/A
N/A
N/A
N/A
N/A
Source: Company website, June 2014 (*) Units can be swapped in a 1:1 ratio for 1 min voice calls/ 1 SMS/ 1MB data
27 June 2014
13
Alo Bort
Alo Kalamngy
Alo Netawy
Mid-Day
All Day
All Day
Long
All day
Long
All day
Long+
All day
Long
All day
Long+
All day
Light
Raw2ngy
Raw2ngy
Akher
Haga
0.6PT
1.2LE
2.4LE
3LE
4LE
3LE
6LE
2.5LE
N/A
1LE
19PT
19PT
19PT
19PT
19PT
19PT
19PT
19PT
14PT
14PT
19PT
19PT
19PT
19PT
19PT
19PT
19PT
19PT
14PT
14PT
SMS rate
29PT
29PT
29PT
29PT
29PT
30PT
30PT
30PT
29PT
14PT
International SMS
99PT
99PT
99PT
99PT
99PT
99PT
99PT
99PT
99PT
99PT
35
130
180
150
150
60
150
180
N/A
N/A
Inclusive anytime
minutes
N/A
N/A
N/A
10
N/A
15
N/A
N/A
N/A
N/A
N/A
30
N/A
N/A
N/A
Inclusive data MB
N/A
N/A
N/A
Midnight
to 12PM
Midnight
to 6PM
All day
N/A
Minute use
N/A
N/A
60
N/A
30
N/A
N/A
10
N/A
15
N/A
N/A
N/A
N/A
N/A
20
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FIGURE 20
Etisalat Egypt Selected prepaid/hybrid tariffs, EGP
Ahlan Kol
7aga All Day
CUG
14 pts for
Everything
NA
NA
Super Yes
7PT for 10 #'s
All Day
Ahly Control
Club Monthly
35
Club Yearly
NA
NA
0.19
0.19
0.21
0.19
0.19
0.21
On-net rate
(per min)
NA
0.14
0.15
0.19
0.19
Off-net rate
(per min)
0.14
0.14
0.15
0.19
0.19
Set-up fee
MiniMix
12/week
1.5
2.00
1.00
40/month
89/month
35/month
349/annum
No of on-net
minutes
420
NA
NA
180
1200
Unlimited and
45mins off-net
1200 and 60
off-net
1500 and
45mins off-net
No of off-net
minutes
NA
NA
NA
NA
NA
NA
NA
27 June 2014
14
FIGURE 21
Kenya Mobile market share, %
100
6,000
90
5,000
80
4,000
70
60
3,000
50
2,000
40
Bharti launches
price offensive
Source: CCK
Airtel
Essar (Yu)
Safaricom
Airtel
Essar (Yu)
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
Safaricom
1Q11
-1,000
4Q10
10
3Q10
0
1Q10
20
2Q10
1,000
30
Orange
Orange
Source: CCK
Orange Its Holla tariff for KES10/day offers unlimited on-net calls/SMS and 10MB of
data. Calls to other networks on this tariff are KES4/min. Alternatively, on the
Usinyamaze tariff, customers enjoy free call to all Orange customers between 10am
and 5am, with standard rates at KES2/min outside these hours. The subscription rate is
KES100/month. A daily subscription to Jienjoy tariff offers 200 on-net mins, 100 onnet SMS and 10MB data for KES20/day.
27 June 2014
15
Tariff name
CUG
Safaricom
Airtel
Airtel
Orange
Yu
Uwezo
Klub 254
Freelanga
Tujuane
MOS-MOS
N/A
N/A
N/A
N/A
Peak: On-net
4.0
1.2
Off-peak: On-net
1.2
4.0
Off-net
4.0
4.0
Over the coming weeks we expect local competition authorities (e.g. competition
commission) to decide on what measures, if any, need to be imposed on Safaricoms MPesa. This given it makes up >95% of the mobile money market. These measures could
include the operator having to open up its M-Pesa distribution network, and/or forcing
interoperability between the services. We believe the following factors should be
considered:
Safaricom has c80% share in a regulated market. According to 4Q13 statistics from
the telecom regulator (CAK), Safaricom has 78.2% market share of voice minutes. This
comes despite pro-competitive MTR measures imposed by the regulator and the price
war of 2010.
Clear leader on money distribution. At its March FY14 results Safaricom disclosed that
it has 81k M-Pesa agents. This compares with the overall markets between 95-115k
agents (Telecom regulator vs. Central Bank Data). In contrast there are just 2,500 ATMs
and 21,500 POS machines in Kenya according to the Central Bank of Kenya.
Commercial vs. legal exclusivity. While Safaricom may have to open its distribution
channel, we would expect ubiquitous distribution a tall order for challengers. Firstly,
given Safaricoms wallet share, competitors will have to compete aggressively
(commercially) for agent share. Also wed be surprised if agents could accommodate
several discrete cash floats. Also wed expect distribution costs for challengers as a
percentage of group revenues to be materially higher, given Safaricoms existing scale in
telecoms.
What will be the competitors unique selling point, price? Below we set out a
comparative table for mobile money charges in Kenya (based on KES10k/$110). Its
clear from this snapshot, but equally across the bands, that Safaricom is already at a
material price premium to competitors. For example, from Oct 2012 Bharti eliminated
the cost of transferring mobile money, both on-net and off-net. Also we note that the
10% excise duty announced in 2012 was passed onto the consumer with limited impact
on M-Pesa revenues. This suggests M-Pesa has been relatively inelastic to this point.
That said, if Safaricom is forced to cut its transfer costs to non M-Pesa users, this could
support market share gains for challenger operators. Challenger operators would
however need to provide a compelling reason for customers to switch this is not
apparent from the voice market.
Secular shift offers secular opportunity. The transaction element of the mobile wallet
still offers attractive opportunity in our view. According to a recent presentation by
Equity Bank, 96% of transactions are still done via cash in the economy. This was
reinforced by Safaricom on its FY14 conference call in which it said that cash to retailers
currently stands at $30bn. To put this in context, just 1% of this pool is an equivalent of
current M-Pesa revenues.
27 June 2014
16
In a scenario where Safaricom took 25% of this cash transaction pool it would be
worth $75m ($30bn x 25% x 1%). Based on its FY15 EV/Sales multiple of 3x, this is
worth $225m/KES20bn or KES0.5/share. Given 1) the OpFCF margin could well be
higher however than the traditional telco business (i.e. no capex), and 2) it would
expose Safaricom to growth of the retail sector, a higher EV/Sales could well be
justified.
Eye on Tanzania. Etisalat, Bharti and Millicom announced an African first by making
their mobile money services inter-operable. As such, changes in market dynamics here
will be monitored.
FIGURE 24
Kenya Mobile Money pricing for KES20,000
Safaricom
Airtel
Orange
Yu
P2P (on-net)
55
30
P2P (off-net)
171
155
N/A
110
75
75
65
110
85
100
85
Source: Respective Company websites, Pricing at June 2014. P2P = Peer 2 Peer
FY15 EV/EBITDA
Telecom
business
12.5
15.0
17.5
20.0
22.5
25.0
6.8
6.5
6.3
6.0
5.8
5.6
FY16 EV/EBITDA
5.9
5.7
5.5
5.3
5.1
4.9
FY15 EV/OpFCF
11.7
11.3
10.9
10.5
10.0
9.6
FY16 EV/OpFCF
9.5
9.2
8.8
8.5
8.1
7.8
We note that European Payment companies Wirecard, PayPoint and Optimal Payments all trade on calendar 2014
Equity FCF yields of <5%.
27 June 2014
17
Outbound pricing in Morocco has been under notable pressure over recent years, with
average price per minute falling from MAD1.12/min ($0.13) in 2010 to MAD0.34/min
($0.04) in 1Q14.
FIGURE 27
Morocco Cumulative net adds, 000s
FIGURE 26
Morocco Mobile market share, %
2
37
37
14,000
6
37
13
34
19
20
23
25
26
28
12,000
10,000
32
33
31
30
28
29
8,000
6,000
61
61
57
53
49
4,000
47
46
46
45
43
2,000
0
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
70
60
50
40
30
20
10
0
Maroc
Source: ANRT
Medi
-2,000
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
100
90
80
Wana
Maroc
Medi
Wana
Source: ANRT
27 June 2014
18
Sonatel also promotes different time of day rates, with midnight calls down to 0.50
F/sec (c$0.06/min). The Illimix S'Cool (day) tariff offers 60 mins (CUG), unlimited texts
and 50MB of data for CFA490/day.
Tigos bundled tariff on offer is branded under the Tawfekh umbrella. An unlimited
data tariff is also available, priced from 600F/day to 15,000F/month (30). The
company is currently running a 100% bonus on these tariffs. The company also bumped
up the data included in the Tawfekh 30 from 1.2GB to 1.5GB.
Expresso has been aggressive on promotions, with headline grabbing promotions that
include CFA100,000 credit for only CFA1,000 (2.00). Time-based promotions also
apply, for e.g. CFA390/$0.81 provides four hours of voice, 400 SMS and four hours of
internet, making this the cheapest effective rate on the market (and below Sonatels
effective pricing).
FIGURE 28
Senegal Mobile market share, %
FIGURE 29
Senegal Cumulative net adds, 000s
100 1 2 3 3 3 4
9 11 10 11 12 9 11 12 13 15
18 21 21 21
90
80 33 34 30 30 33 33
31 28 28 28 26 26 25 25 24 23
22 21 21
70
22
60
3,500
3,000
2,500
2,000
50
40
64
67
1,500
63
61
61
65
63
62
61 58 58
57
20
1,000
500
0
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
10
Orange
Tigo
-500
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
30
4,000
Expresso
Source: ARTP
Orange
Tigo
Expresso
Source: ARTP
FIGURE 30
Senegal Daily bundles
Sonatel
Tigo
Expresso
Chrono 24
60mins (CUG)
2hrs
2hrs
SMS
Unlimited (CUG)
240
200
Data
50
300
2hrs
600
590
Voice
Cost (CFA)
Notes
490
100% bonus
27 June 2014
19
BARCLAYS COMPS
FIGURE 31
Barclays Global comps
Market Cap, mn
Currency Price
Local currency
CEEMEA
EV/OpFCF (x)
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
15.0
12.8
11.5
5.8
5.6
5.3
9.1
9.3
8.8
6.0
6.3
7.0
Kcell
USD
14.8
2,966
8.7
8.1
8.2
4.6
4.4
4.4
5.5
5.7
6.4
11.6
12.3
12.2
Maroc
MAD
94.7
83,206
15.0
13.6
13.2
6.3
6.5
6.5
8.9
9.3
9.0
6.3
7.3
7.6
MegaFon
USD
31.8
18,206
11.8
11.8
10.8
5.8
5.4
5.3
8.9
9.3
8.6
6.0
6.0
6.4
Millicom
SEK
611.5
61,064
19.5
24.2
18.1
8.0
7.4
6.4
19.9
16.1
12.5
2.9
2.9
3.9
MTS
USD
19.8
19,710
9.3
10.4
10.2
4.7
4.7
4.6
8.8
9.0
9.1
7.6
7.2
7.0
MTN
ZAR
224.6
423,208
16.2
14.1
12.2
7.1
6.2
5.6
14.3
10.2
8.5
4.6
5.3
6.1
Naspers
ZAR
1,232.0
524,178
56.5
34.6
23.6
NA
NA
NA
NA
NA
NA
0.3
0.6
2.1
Orange Polska
PLN
9.8
12,865
33.4
28.2
34.0
4.5
4.7
5.0
10.8
8.6
9.5
5.1
7.7
7.7
Orascom
USD
3.6
3,767
NA
7.8
6.8
5.7
5.6
5.3
8.5
9.3
8.6
0.0
0.0
0.0
Safari
KES
12.0
480,000
20.8
15.2
12.1
7.8
6.7
5.8
14.3
10.9
8.8
3.9
5.3
7.0
Sonatel
CFA
21,900.0
2,190,000
13.0
11.9
11.0
6.3
5.9
5.5
9.1
8.6
7.9
7.1
7.2
7.7
Tel Egypt
EGP
13.3
22,686
9.3
8.3
8.4
1.2
1.2
1.2
1.5
NA
3.1
7.5
7.5
7.5
TurkTel
TRY
6.2
21,595
16.6
10.8
8.6
5.6
5.4
5.2
10.1
8.9
8.8
5.6
8.4
10.6
Turkcell
TRY
13.2
28,930
12.4
14.0
11.9
6.0
5.7
5.3
12.4
12.5
10.1
5.3
6.3
VimpelCom
USD
8.5
13,686
15.1
11.8
7.6
3.9
4.3
4.3
6.8
9.3
8.4
0.4
0.4
Vodacom
ZAR
128.5
188,811
LatAm
13.4
14.2
13.6
12.6
7.2
6.9
6.5
11.9
12.8
11.0
6.4
6.6
7.2
13.8
21.7
16.9
6.1
5.6
5.9
11.8
13.2
11.0
2.5
2.3
2.4
AMX
USD
19.9
69,922
12.4
16.0
16.6
5.2
5.2
5.1
10.5
9.6
9.1
1.7
1.7
1.8
CWC
GBP
0.5
1,177
14.2
34.4
17.2
6.8
6.7
6.5
12.2
13.2
11.3
4.9
4.9
4.9
NII
USD
0.7
117
NA
NA
NA
14.5
NA
18.3
NA
NA
NA
0.0
0.0
0.0
TEF Brasil
USD
20.3
22,805
13.3
16.3
14.4
4.9
4.9
4.6
11.4
13.2
10.6
8.1
7.0
7.4
TIM Brasil
USD
29.8
14,395
20.6
27.0
26.7
6.1
5.9
5.9
23.7
20.5
17.7
2.5
2.3
2.4
Source: Barclays Research estimates, Company data. Reuters prices as of 25st June2014 at market close. For full disclosures, including details of our company-specific valuation
methodology and risks, please refer to http://publicresearch.barcap.com.
27 June 2014
20
2013A
2014E
2015E
2016E
136,495 154,447 166,611 180,800
59,788
68,366
75,231
81,895
40,510
46,728
52,574
58,397
-1,234
-1,319
-783
-529
48,144
54,842
62,018
42,707
28.8
30.5
31.0
31.0
26,289
29,120
32,921
37,230
13.86
15.96
18.47
21.43
1,824
1,782
1,738
1,833
10.35
11.90
13.69
21.43
CAGR
9.8%
11.1%
13.0%
N/A
13.2%
2.5%
12.3%
15.6%
-1.8%
27.4%
45.3
32.3
34.3
20.6
31.1
18.6
N/A
18.6
32.4
Average
44.6
30.9
32.4
19.6
28.5
16.1
35.1
16.1
27.2
CAGR
-3.4%
0.0%
2.3%
-1.1%
-19.5%
0.0%
0.3%
N/A
-2.5%
16.9%
N/A
23.0%
11.8%
43.8
29.7
31.3
19.3
25.8
14.3
34.6
14.3
24.7
44.3
30.3
31.2
18.9
27.6
14.5
35.5
14.5
24.1
45.2
31.6
32.9
19.8
29.7
16.7
N/A
16.7
27.4
16.3
7.1
5.3
3.1
3.4
4.6
20.3
0.0
14.1
6.2
6.2
2.7
3.4
5.3
19.5
-0.1
12.2
5.6
7.6
2.5
3.4
6.1
14.8
-0.2
10.5
5.2
10.4
2.3
3.5
9.5
11.0
-0.4
-5.6
5.3
60.7
-5.7
12.5
56.4
2.0
12.3
56.5
3.0
10.7
56.2
Average
13.3
6.0
7.4
2.7
3.4
6.4
16.4
-0.2
Price (24-Jun-2014)
ZAR 225.20
Price Target
ZAR 230.00
Why Overweight? MTN is scaled in core markets
which are positively exposed to GDP growth. The
company is delivering operationally, and we see
upside risk to medium-term shareholder returns. We
also see scope for the company to reduce the WACC
of MTNI over the medium term, driving value.
Upside case
ZAR 274.00
We assume that mobile money takes off across the
portfolio (ex SA and Iran). Our upside case is based
on 70% penetration, 5 years from today.
Downside case
ZAR 187.00
Our downside scenario is based on irrational market
pricing in Nigeria. Separately, in a scenario where
MTN must settle the full value of Turkcell.
Upside/Downside scenarios
Value
Quality
Sentiment
Low
High
27 June 2014
21
2014E
28,717
15,710
10,669
-420
10,249
32
6,096
6.93
879.1
6.93
2015E
29,187
15,822
11,050
-397
10,654
32
6,294
7.16
879.1
7.16
2016E
30,042
16,200
11,565
-357
11,209
32
6,615
7.53
879.1
7.53
CAGR
1.7%
0.0%
1.9%
N/A
2.0%
-7.0%
6.1%
6.1%
0.0%
7.8%
56.8
38.3
37.0
19.4
39.8
13.8
25.8
13.8
27.3
54.7
37.2
35.7
21.2
38.2
15.4
28.6
15.4
29.6
54.2
37.9
36.5
21.6
38.8
15.8
29.8
15.8
29.1
53.9
38.5
37.3
22.0
39.0
16.2
31.2
16.2
29.5
Average
54.9
38.0
36.6
21.1
38.9
15.3
28.8
15.3
28.9
25,548
10,060
1,084
47,167
7,983
299
27,235
6,890
19,933
12,502
-4,849
7,058
6,584
25,374
9,936
1,634
47,275
7,983
299
26,029
6,336
21,249
11,369
-4,742
6,248
7,255
25,232
9,812
2,413
47,942
7,983
299
25,987
5,557
21,959
12,215
-4,505
7,272
7,514
25,207
9,688
3,383
49,045
7,983
299
26,214
4,588
22,835
12,559
-4,486
7,621
7,864
CAGR
-0.4%
-1.2%
46.1%
1.3%
0.0%
0.0%
-1.3%
-12.7%
4.6%
0.2%
N/A
2.6%
6.1%
12.6
6.3
9.2
3.4
3.6
8.0
16.3
0.3
Average
13.6
6.4
8.5
3.5
3.9
7.3
16.7
0.4
Price (24-Jun-2014)
MAD 94.50
Price Target
MAD 83.00
Why Underweight? While the Etisilat buyout should
provide support, we believe the investment case will
revert to fundamentals on a 12 month view. Our five
factor PERRR model suggests that Maroc Telecom is
one of the least compelling names on this basis.
Upside case
MAD 95.63
In a scenario where our forecasts for domestic and
offshore growth are more optimistic, the company
could beat our top-line and EBITDA margin forecasts.
A re-rating in the EV/EBITDA multiple to 6.5x, could
see the share price push towards MAD96.
Downside case
MAD 63.19
In a scenario where the real growth profile continues
to decline, we argue that the EV/EBITDA could derate
in line with European peers to an average of 4.5x
(calendar 2014). This would see the share price fall to
MAD63.
Upside/Downside scenarios
15.0
6.3
8.5
3.6
4.2
6.3
16.9
0.4
13.6
6.5
7.5
3.6
3.9
7.3
16.9
0.4
13.2
6.4
8.8
3.5
3.8
7.6
16.6
0.4
Value
Quality
Sentiment
Low
High
27 June 2014
22
Millicom (MICsdb.ST)
Income statement ($mn)
Revenue
EBITDA
EBIT
Finance costs - net
Pre-tax income
Tax rate (%)
Net income
EPS (adj) ($)
Diluted shares (mn)
DPS ($)
Margin and return data
EBITDA margin (%)
EBIT margin (%)
Pre-tax margin (%)
Net margin (%)
Operating CF margin (%)
ROIC (%)
RONTA (%)
ROA (%)
ROE (%)
Balance sheet and cash flow ($mn)
Tangible fixed assets
Intangible fixed assets
Cash and equivalents
Total assets
Short and long-term debt
Other long-term liabilities
Total liabilities
Net debt/(funds)
Shareholders' equity
Cash flow from operations
Capex and acquisitions
Free cash flow
NOPAT
2014E
6,446
2,142
1,098
-339
2,930
9
2,559
3.76
100.0
2.64
CAGR
11.7%
9.9%
8.7%
N/A
16.9%
-5.1%
36.9%
7.9%
-1.0%
15.8%
33.8
17.2
13.0
7.3
17.3
7.8
6.9
7.0
20.4
Average
34.0
17.5
20.6
14.4
14.7
8.4
6.2
7.2
69.2
CAGR
3.5%
25.5%
22.4%
12.8%
6.7%
0.0%
10.9%
8.1%
30.2%
14.7%
N/A
75.7%
8.7%
35.4
33.2
18.6
17.0
45.4
11.4
4.0
39.7
14.3
11.7
9.7
8.4
5.7
5.5
8.2
6.9
17.0 214.3
3,403
2,650
941
9,570
4,328
192
7,244
2,487
1,226
1,297
-1,176
121
745
2015E 2016E
7,402 7,745
2,493 2,617
1,273 1,330
-338 -338
929 1,010
28
28
502
567
5.02
5.85
100.0
96.8
3.51
4.10
33.7
17.2
12.5
6.8
15.7
7.9
6.6
6.8
25.1
19.7
8.9
1.3
3.2
7.5
2.9
51.1
1.3
24.4
8.2
1.7
2.7
7.9
2.9
47.6
1.6
18.3
7.1
5.4
2.4
3.2
3.8
41.3
1.3
15.6
6.7
7.4
2.3
3.3
4.5
41.7
1.2
7.2
N/A
0.00
6.5
N/A
0.00
6.6
N/A
0.00
6.7
N/A
3.05
Price (24-Jun-2014)
SEK 616.50
Price Target
SEK 600.00
Why Equal Weight? Millicom's progressive approach
to innovation de-risks its revenue outlook from peers.
In isolation, we estimate top-line outperformance
justifies a 20% FCF premium. We expect near-zero
incremental ROIC generation over the next 12 months
as the company transitions an investment phase. We
believe growth opportunity is offset by risk to
execution/cash flows.
Upside case
SEK 670.00
In an upside scenario, Rocket Internet beats its $1bn
revenue target during phase 1 of Millicom's
investment. We estimate incremental upside of SEK70
to our valuation.
Downside case
SEK 520.00
In a downside case real growth at Millicom's telco
operations flattens as voice price competition bites. In
this scenario the business de-rates to 5x EBITDA.
Upside/Downside scenarios
Average
19.5
7.7
3.9
2.6
5.5
3.5
45.4
1.3
27 June 2014
23
2014A
2015E
2016E
2017E
144,670 164,167 185,151 205,131
60,940
70,626
81,504
91,941
35,150
46,127
57,108
67,015
-160
-978
-276
56
45,148
56,832
67,071
34,990
34
30
30
30
23,020
31,604
39,782
46,950
0.58
0.79
0.99
1.17
40,000.0 40,000.0 40,000.0 40,000.0
0.47
0.63
0.85
1.17
42.1
24.3
24.2
15.9
22.9
17.6
23.9
17.6
26.8
43.0
28.1
27.5
19.3
26.5
23.9
32.5
22.9
34.6
44.0
30.8
30.7
21.5
29.0
27.6
39.0
25.5
40.4
CAGR
12.3%
14.7%
24.0%
N/A
24.2%
-4.3%
26.8%
26.8%
0.0%
35.7%
44.8
32.7
32.7
22.9
29.8
29.0
43.3
27.0
41.8
Average
43.5
29.0
28.8
19.9
27.1
24.5
34.7
23.2
35.9
99,244
1,641
26,789
181,870
12,610
0
51,095
-36,817
91,289
73,922
30,770
43,153
46,910
CAGR
0.9%
0.0%
15.0%
10.6%
0.0%
N/A
5.6%
N/A
0.0%
13.6%
3.5%
23.9%
26.6%
10.7
5.4
8.6
2.4
4.2
9.3
7.4
-0.4
Average
15.3
6.7
6.6
2.9
5.0
6.2
8.6
-0.3
Price (24-Jun-2014)
KES 12.60
Price Target
KES 13.00
Why Overweight? We see the company's real growth
(i.e. inflation adjusted) driving further re-rating
potential. Highlighting the mobile wallet opportunity,
we see a path to it doubling its ARPU given recent
product launches. Further upside could exist if
Safaricom is able to monetize "big data" over the
medium term.
Upside case
KES 15.64
In a scenario where M-Pesa growth forecasts are
ahead of our base case, on relatively light comps
(2014 calendar EV/EBITDA of 5.7x) this could imply a
re-rating of the stock. We see the share price
increasing to KES15.6.
Downside case
KES 10.66
In a scenario where agent exclusivity on M-Pesa is
removed, this could significantly impact the growth
profile. Applying a 20% cut to our M Pesa forecasts
this would impy downside to KES10.7.
Upside/Downside scenarios
21.9
8.2
4.5
3.4
5.5
3.7
9.4
-0.1
97,382
1,641
18,910
147,555
12,610
0
44,414
-14,179
74,165
55,057
27,088
27,969
32,289
15.9
7.1
5.5
3.0
5.5
5.0
9.3
-0.2
99,244
1,641
26,789
165,490
12,610
0
47,850
-27,479
91,289
66,356
27,773
38,583
39,975
12.7
6.1
7.7
2.7
4.8
6.7
8.2
-0.3
Value
Quality
Sentiment
Low
High
27 June 2014
24
Sonatel (SNTSbrg.XOF)
Income statement (mn)
Revenue
EBITDA
EBIT
Finance costs - net
Pre-tax income
Tax rate (%)
Net income
EPS (adj) (CFA)
Diluted shares
DPS
51.2
36.5
35.9
25.3
34.9
22.8
36.9
18.3
31.4
50.9
37.1
36.6
25.6
34.4
24.1
41.7
19.6
32.5
50.7
37.5
37.0
25.9
35.2
20.0
44.3
20.0
32.4
50.5
37.5
37.1
26.0
35.5
19.9
46.4
19.9
31.7
CAGR
6.8%
6.3%
7.8%
N/A
7.9%
-3.3%
7.7%
7.8%
0.0%
4.9%
Average
50.8
37.1
36.7
25.7
35.0
21.7
42.3
19.4
32.0
Price (24-Jun-2014)
CFA 21,900.00
Price Target
CFA 21,000.00
Why Underweight? Real growth is a key driver of
valuation the telecom sector, given its high gross
margin nature. For Sonatel, we believe real growth
and its re-rating potential is constrained by high levels
of promotional activity in the domestic mobile pricing
environment. We see this pricing environment
remaining challenging through 2014.
Upside case
CFA 24,000.00
In a scenario where our real growth continues to
remain positive, we could see the company beating
forecasts vs our base case. Given a OpFCF of 8.0x,
this implies a price of XOF24,000.
Downside case
CFA 19,000.00
Sonatel has been enjoying a period of relative
dominance whilst a competitor has effectively been
closed off from the market. With competitive intensity
stepping up, our downside case implies a price of
XOF19,000.
Upside/Downside scenarios
13.0
6.3
7.5
3.2
3.6
7.1
22.7
-0.2
11.9
5.9
8.0
2.9
3.3
7.2
21.4
-0.2
11.0
5.5
9.5
2.8
3.0
7.7
20.2
-0.3
10.4
5.3
10.2
2.6
2.8
8.2
19.1
-0.3
CAGR
1.4%
28.8%
16.0%
5.9%
0.0%
0.0%
2.5%
N/A
5.1%
2.6%
N/A
10.8%
9.5%
Average
11.6
5.7
8.8
2.9
3.2
7.5
20.8
-0.2
27 June 2014
25
2014E
11,405
3,562
2,029
-506
3,431
0.2
2,732
1.60
1,707
1.00
2015E
11,892
3,773
1,877
-535
3,394
0.2
2,713
1.59
1,707
1.00
2016E
12,196
3,931
2,000
-517
3,534
0.2
2,825
1.66
1,707
1.00
CAGR
3.1%
2.2%
1.6%
N/A
-2.0%
-1.8%
-1.5%
5.1%
0.0%
0.0%
33.1
17.1
33.7
26.6
26.3
4.6
12.9
4.6
10.5
31.2
17.8
30.1
24.0
-14.9
4.7
13.7
4.9
9.7
31.7
15.8
28.5
22.8
12.0
4.2
N/A
4.5
9.6
32.2
16.4
29.0
23.2
15.2
4.4
N/A
4.8
9.8
Average
32.1
16.8
30.3
24.1
9.7
4.5
13.3
4.7
9.9
12,348
543
3,806
33,121
523
10
7,309
-3,283
28,185
4,234
-5,366
-1,967
1,617
12,658
543
2,633
33,302
523
10
7,309
-2,110
28,566
3,647
-2,341
436
1,502
12,863
543
1,875
33,831
523
10
7,309
-1,353
29,095
3,802
-2,073
869
1,600
CAGR
4.6%
3.7%
-30.8%
1.2%
-3.5%
-6.4%
19.1%
N/A
0.9%
9.7%
N/A
-11.4%
2.1%
8.3
1.3
-8.6
0.4
0.8
7.5
1.5
-0.9
8.4
1.2
1.9
0.4
0.8
7.5
1.5
-0.6
8.0
1.1
3.8
0.4
0.8
7.5
1.4
-0.3
Average
8.5
1.2
0.6
0.4
0.8
7.5
1.5
-0.8
9.3
1.2
5.5
0.4
0.8
7.5
1.8
-1.4
Price (24-Jun-2014)
EGP 13.33
Price Target
EGP 15.50
Why Equal Weight? Telecom Egypt is facing earnings
pressure as core elements of its fixed line business
face secular pressures. A more stable political
enviroment could however present an opportunity to
win back business. Entry into mobile presents
execution risk that is captured in the stock's valuation.
Upside case
EGP 18.00
The Egyptian economic and political landscape
improves. Also Broadband subscriber growth exceeds
our expectations by 15% per annum
Downside case
EGP 14.00
The company is not able to grow its fixed broadband
base over the medium term as competing offers from
mobile drive substitution.
Upside/Downside scenarios
Value
Quality
Sentiment
Low
High
27 June 2014
26
2014A
75,711
27,314
20,394
-718
19,585
30.2
13,243
9.02
1,468
8.25
2015E
78,199
28,525
21,043
-636
20,407
30.1
13,836
9.43
1,468
8.48
2016E
82,088
30,388
22,258
-309
21,949
29.5
15,010
10.22
1,468
9.20
2017E
86,016
32,164
23,551
-309
23,241
29.5
15,894
10.83
1,468
10.83
CAGR
4.3%
5.6%
4.9%
N/A
5.9%
-0.8%
6.3%
6.3%
0.0%
9.5%
36.1
26.9
25.9
17.5
23.5
24.5
51.3
24.5
58.9
36.5
26.9
26.1
17.7
22.3
24.1
47.8
24.1
52.9
37.0
27.1
26.7
18.3
21.8
24.8
44.5
24.8
49.7
37.4
27.4
27.0
18.5
23.0
24.8
42.8
24.8
47.5
Average
36.7
27.1
26.4
18.0
22.6
24.5
46.6
24.5
52.3
35,299
6,493
5,209
61,401
12,939
263
32,881
7,729
27,407
29,025
-11,102
11,193
14,709
38,765
7,360
4,848
65,082
12,580
263
33,230
7,732
30,273
31,388
-12,463
12,091
15,692
41,791
8,116
3,791
68,661
12,220
263
33,624
8,429
32,967
32,064
-12,396
12,452
16,603
CAGR
10.7%
14.8%
-14.8%
4.2%
-4.6%
0.0%
-3.1%
4.4%
12.7%
3.5%
N/A
-2.2%
5.3%
13.9
7.0
5.8
2.6
6.7
6.5
21.1
0.3
12.8
6.6
6.3
2.4
6.0
7.0
19.3
0.3
12.1
6.2
6.5
2.3
5.5
8.3
17.8
0.3
Average
13.3
6.8
6.4
2.5
6.6
7.0
20.3
0.3
14.5
7.3
6.9
2.6
8.1
6.3
23.2
0.3
0.3
-1.4
2.5
4.0
23.6
20.9
14.9
11.6
32,963.0 34,427.0 35,598.2 36,535.2
Price (24-Jun-2014)
ZAR 130.70
Price Target
ZAR 115.00
Why Underweight? At current levels we do not
believe that risks to (calendar) 2013 are adequately
priced in. We see incremental risk to domestic
contract (post-paid) revenues, pre-paid voice price
competition and SMS into 2013.
Upside case
ZAR 146.00
Where our concerns on domestic mobile do not play
out, the company could beat. A 2pp EBITDA margin
beat (versus our base case) would likely see the share
push towards our upside case.
Downside case
ZAR 100.00
Were the final MTR decision to remain similar to the
October 2013 draft, and a fresh round of voice price
cuts initiated, we would expect the share price to fall
towards our downside case.
Upside/Downside scenarios
Value
Quality
Sentiment
Low
High
27 June 2014
27
ANALYST(S) CERTIFICATION(S):
We, JP Davids, CFA, Maurice Patrick, David Kaplan and Roman Arbuzov, hereby certify (1) that the views expressed in this research report
accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
The POINT Quantitative Equity Scores (POINT Scores) referenced herein are produced by the firms POINT quantitative model and Barclays
hereby certifies that (1) the views expressed in this research report accurately reflect the firm's POINT Scores model and (2) no part of the firm's
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
Disclosure Legend:
A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in the
previous 12 months.
B: An employee of Barclays Bank PLC and/or an affiliate is a director of this issuer.
C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in equity securities issued by this issuer or one of its affiliates.
D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from this issuer in the past 12 months.
E: Barclays Bank PLC and/or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer
within the next 3 months.
F: Barclays Bank PLC and/or an affiliate beneficially owned 1% or more of a class of equity securities of the issuer as of the end of the month prior
to the research report's issuance.
G: One of the analysts on the coverage team (or a member of his or her household) owns shares of the common stock of this issuer.
H: This issuer beneficially owns 5% or more of any class of common equity securities of Barclays Bank PLC.
27 June 2014
28
DiGi.Com (DSOM.KL)
KT Corp. (030200.KS)
M1 (MONE.SI)
Maxis (MXSC.KL)
PT Indosat (ISAT.JK)
PT Telkom (TLKM.JK)
PT XL Axiata (EXCL.JK)
SK Telecom (017670.KS)
29
KCell (KCELq.L)
Megafon (MFONq.L)
Millicom (MICsdb.ST)
Naspers (NPNJn.J)
Oi (OIBR)
Rostelecom (RTKM.MM)
Rostelecom (RTKM_p.MM)
Sonatel (SNTSbrg.XOF)
Telkom (TKGJ.J)
Turkcell (TCELL.IS)
VimpelCom (VIP)
Bouygues SA (BOUY.PA)
Colt (COLT.L)
Daisy (DAY.L)
Iliad SA (ILD.PA)
KCOM (KCOM.L)
KPN (KPN.AS)
Mobistar (MSTAR.BR)
Orange (ORAN.PA)
OTE (OTEr.AT)
Swisscom (SCMN.VX)
TDC (TDC.CO)
Tele2 AB (TEL2b.ST)
Telefonica SA (TEF.MC)
TeliaSonera AB (TLSN.ST)
Ziggo (ZIGGO.AS)
30
27 June 2014
31
32
26 June 2014
33
US08-000001