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Lower FY 2018 results on negative FX impact and previous year one-time tax settlement

Lower FY 2018 results on negative FX impact and previous year one-time tax settlement

EARNINGS/SALES RELEASES

Paltel recorded lower than expected results in Q3 and Q4, which affected the group’s FY 2018 overall performance. Q4 2018 revenues decreased by 15.4%, at JOD 69.3m mainly due to the increasing competition in the mobile sector in addition to the negative FX impact, taking FY 2018 revenues to JOD 305.5m, down 8.7%, yoy. FY 2018 net profit stood at JOD 67.1m, slightly down by 4.9%, yoy, affected mainly by the drop witnessed in Q3 2018 net profit (-27.1% at JOD 15.6m), due to the non-recurring tax settlement recorded during Q4 2017 which resulted in non-recurring gain of (JOD+13.6). FY 2018 dividend was proposed at JOD0.4/share, which equals 2017. Paltel’s FY 2018 results were lower than our expectations.

FACT

Paltel recorded a decrease by 8.7%, yoy, in its FY 2018 revenues at JOD 305.5m. The group’s FY 2018 customer base was up by 0.7% compared to the end of 2017 at 3.835 million subscribers, with an increase in Mobile segment (+1%) offsetting the slight decrease by 0.5% in Fixed segment and the flat customer growth in Data segment (+0.1%). Thus, the Mobile segment remains the first contributor to the group’s customer base with 78.4% in 2018, followed by the Fixed Line and Data segments contributing by 12.3% and 9.3%, respectively.


ANALYSIS

The overall performance of Q3 and Q4 has negatively affected Paltel’s FY 2018 performance; however, other income statement items limited the bottom line drop to 4.9%, yoy. Indeed, the decline in the group’s first 9M 2018 revenues (-6.6%) was consequently followed by another drop in Q4 2018 (-15.4%, at JOD 69.3m), missing our estimates (a decrease by 4.3% expected by our model for the whole year). Note in this sense that, contrary to the first two quarters, Q3 2018 and Q4 2018 revenues were negatively affected by the negative FX impact. Similarly, Q4 2018 net profit recorded a drop by 7.5% at JOD 14.9m, taking FY 2018 bottom line to JOD 67.1m, down 4.9%, yoy. Recall that FY 2018 net profit was affected mainly by the drop witnessed in Q3 2018 net profit (-27.1% at JOD 15.6m), due to the non-recurring tax settlement recorded during the quarter (JOD+13.6). Thus, the drop in FY 2018 net profit is attributable to lower revenues and increased finance costs due to license fees payments, offsetting the net decrease in operating costs, the improvement in investment portfolio return and the increase in the company’s share of associates’ results. Paltel’s FY 2018 bottom line comes below our projections assuming a 2% decrease at JOD 69.1m. Paltel’s board proposed a cash dividend payment of JOD0.4/share for 2018 which equals 2017 (in line with our expectations).


IMPACT

Model under review.