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Q3 2018 results affected by previous year one-time tax settlement

Q3 2018 results affected by previous year one-time tax settlement

EARNINGS/SALES RELEASES

Paltel recorded lower than expected Q3 2018 results affecting the group’s 9M 2018 overall performance. Q3 2018 revenues decreased by 12.1%, at JOD76.8m due to the increasing competition in the mobile sector in addition to the negative FX impact experienced in Q3 2018. Q3 2018 net profit dropped by 27.1% at JOD15.5m due to the non-recurring tax settlement recorded in Q3 2017 (JOD+13.6m). Consequently, 9M 2018 revenues and net profit dropped by respectively 6.6%, at JOD236.2m and 4.1%, yoy, at JOD52.2m.

FACT

Paltel recorded a decrease by 6.6%, yoy, in its 9M 2018 revenues at JOD236.2m, with a drop in, both, Mobile and Fixed revenues offsetting the increase in Data services revenues. Indeed, in the face of a mature Palestinian market, and increased pressure from Wataniya Mobile, which started operating in the Gaza Strip in October 2017, Paltel’s Mobile revenues decreased by 12.6% in 9M 2018 to JOD141.9m (contributing 60.1% to the group’s 9M 2018 revenues vs. 64.3% in 9M 2017). The Fixed Line segment recorded a drop by 4.7% at JOD29.4m with an almost stable contribution of 12.5% compared to 12.2% in 9M 2017. By contrast, the Data segment performed well during this period, with a revenue growth rate of 8.9% at JOD64.7m, contributing 27.4% to the group’s 9M 2018 revenues (vs. 23.5% in 9M 2017). Paltel’s 9M 2018 customer base was up by 1.1% compared to the end of 2017 at 3.852 million subscribers, with an increase across all business segments. The Mobile segment remains the first contributor to the group’s customer base with 78.1% in 9M 2018, followed by the Fixed Line and Data segments contributing by 12.5% and 9.5%, respectively.


ANALYSIS

Paltel’s 9M 2018 results were clearly affected by the Q3 2018 achievements. Indeed, the decline in the group’s H1 2018 revenues (-3.7%) has worsened with the aggressive slowdown witnessed during the Q3 2018 (-12.1%, at JOD76.8m), missing our estimates (a slight increase by 0.89% expected by our model for the whole year). Note in this sense that, contrary to the first two quarters, Q3 2018 revenues were severely impacted by the negative FX impact. Similarly, after the strong H1 2018 net profit growth (+10.8%), Paltel recorded a crash by 27.1% in Q3 2018 net profit at JOD15.5m, due to the non-recurring tax settlement recorded in Q3 2017 (JOD+13.6). Consequently, Paltel’s 9M 2018 net profit dropped by 4.1% to JOD52.2m, on lower revenues and increased finance and tax costs, offsetting the net improvement in investment portfolio return and the increase in the company’s share of associates’ results. Paltel’s 9M 2018 bottom line comes far below our projections assuming an 8.9% increase for the whole year.


IMPACT

Model updated based on Q3 2018 figures.