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Heavily impacted by Q2 achievements

Heavily impacted by Q2 achievements

EARNINGS/SALES RELEASES

Paltel recorded a decrease across all the board for the H1 2019 period, due to the slowdown witnessed during the Q2 2019. H1 2019 revenues decreased by 6.3%, yoy, to JOD149.2m due to the increasing competition in the mobile sector in addition to the unpleasant political and economic conditions in the country. H1 2019 net profit witnessed a drop by 3.2%, yoy, to JOD35.5m, on lower revenues, higher finance costs and lower investment portfolio return. On the other hand, general and administrative expenses witnessed a significant savings of 5.8%.

FACT

Paltel recorded a decrease by 6.3%, yoy, in its H1 2019 revenues at JOD149.2m, due to the increasing competition in the mobile sector in addition to the unpleasant political and economic conditions in the country. The group witnessed a drop in telephony revenues offsetting the increase in Data services’ revenues and the positive contribution from the Real Estate sector following the Group’s consolidation of Jericho Gate Real Estate after its acquiring extra 25% in the company, to become a subsidiary with 75% ownership. Revenues from the telephony segment decreased by 19.1% in H1 2019, to JOD93.9m, contributing 62.9% to the group’s H1 2019 revenues vs. 72.9% in H1 2018. By contrast, the Data segment recorded an increase of 4.1% at JOD44.9m, thus, contributing 30.1% to the group’s H1 2019 revenues (vs. 27.1% in H1 2018). Paltel has also benefited from additional revenues of JOD10.324m in H1 2019 related to the Real Estate sector. The group’s H1 2019 customer base was up by 0.1% compared to the end of 2018 at 3.837 million subscribers, with an increase in, both, Mobile and Data segments (+0.1% and +0.3%, respectively), offsetting the drop in the Fixed Line segment (-0.6%). The Mobile segment remains the first contributor to the group’s customer base with 78.5% in H1 2019, followed by the Fixed Line and Data segments, contributing 12.2% and 9.3%, respectively.


ANALYSIS

Paltel’s H1 2019 results were clearly affected by the Q2 2019 performance. The group witnesses a decline in revenues, recording a decrease by 6.5% in Q2 2019 revenues at JOD73m (vs. a decrease by 0.9% expected by our model for the whole year). Similarly, after the solid Q1 2019 net profit growth (+8.9%), Paltel recorded a drop by 19.9% in Q2 2019 net profit at JOD12.3m, pulling down the group’s H1 2019 bottom line to JOD35.5m, i.e. a decrease by 3.2%, (vs. an increase by 0.9% expected by our model for the whole year). Note that the drop in Q2 2019 net bottom line is attributable to lower revenues, higher finance costs and, especially, lower investment portfolio return due to the decrease in the fair value of the investments that are classified as financial assets at fair value through profit or loss. It should also be recalled that the healthy jump in Q1 2019 net profit was supported by a net improvement in Other revenues due to the gain which resulted from the revaluation of the group’s share in Jericho Gate before the acquisition. Meanwhile, we strongly appreciate the group’s ongoing efforts to cut costs, recording lower H1 2019 administrative and operating expenses. Paltel’s H1 2019 results are broadly in line with our projections assuming FY 2019 revenues of JOD303m and an FY 2019 bottom line of JOD67.7m. For the moment, we reiterate our model, pending the Q3 2019 figures release, which should give us a clearer idea about the trend of the group’s activity for the year 2019, especially after the full consolidation ofJericho Gate Real Estate. Recall that we retain our positive opinion on the stock, with a ‘Buy’ recommendation and a target price of JOD6.53 (+57.8% upside), given the group’s industry-leading position, its solid fundamentals and good cash generation capacity.


IMPACT

Reiterated model.