STC AB | Hike TP 24%; Upgrade to Neutral amid active asset monetisation plan
High valuation, but remains Tadawul’s favourite. stc trades on a 2021x EV/EBITDA of 9.0x, significantly higher than the 5.8x peer average. However, we are of the view that stc’s current premium will prevail on the back of its: i) size in the Saudi market, ii) stable dividend policy with a sustainable yield of 4%, iii) asset monetisation plan, iv) strong balance sheet, and iv) exposure to new projects and regional expansion in the ICT business.
EBITDA to grow, on healthier revenue mix. We expect EBITDA to rise by a 2020-22e CAGR of 8.0%, on the back of growth in higher margin segments, such as: i) fibre to the home (FTTH), ii) 5G revenue, and iii) digital services. The latter should come on the digital hub that the company is aiming to establish by promoting investment in international connectivity services and data centres, to leverage the Group’s various assets, services, and technologies. stc has already announced launching three mega data centres in Riyadh, Jeddah, Madinah, at an investment cost of SAR1bn.
Asset monetisation a possible trigger. On 24 Nov-20, stc announced that its 100%-owned stc channels would go public in 2021. There has been no decision taken on the percentage of the stake sale, yet the company is reportedly considering a 20% stake sale of stc Solutions, with a valuation of SAR9bn, on a 18-20x P/E. The telecom operator is still in the initial stages, awaiting BoD and regulatory authorities’ approvals. Separately, stc sold 15% in stc Pay for SAR750mn on Nov-20, valuing the total company at SAR5bn. The company may potentially go public with stc Pay, which should turn profitable in 2022-23e. This, however, will depend on the feasibility study results.
Mounting receivables remain main risk. As of end-3Q20, stc’s receivables reached SAR28.5bn, with government receivables comprising 89% of the total amount. While there have been no updates on the government settling its overdue bills, the company is optimistic on a breakthrough happening soon. We expect a gradual payment, assuming the government will pay 25% p.a. of its more than two years due bills; however, receivables will continue to grow, albeit at a slower rate.
Saudi Telecom is a telecommunications services company based in Saudi Arabia. Co.'s activities comprise the provision of a variety of telecommunications services which include mobile (2G and 3G), fixed local national and international telephone services, telex, telegraph and data services such as data transmission, leased lines, internet services and e-commerce. Co.'s main operating segments comprise: GSM, for which the main services are: mobile, third generation services, prepaid cards, international roaming and messages; PSTN, main services are: fixed line, card telephones, interconnect and international calls; DATA, main services are: leased data transmission circuits, DSL and internet.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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