Etisalat and Mobily initiation report (27 Aug. 2006)
*Emirates Telecommunications Co. (Etisalat) is the UAE's only telecom services provider, operating a virtual monopoly in fixed, mobile and Internet services in the country. The company will soon be facing competition across all core business segments from new-comer Emirates Integrated Telecom Company's (EITC), which will be operating under the brand name Du.
*In response to the prospect of losing market share in its home market, Etisalat has engaged into a new era of expansion. This strategy is further bolstered by a very healthy and rich financial position resulting in a potentially massive war chest for acquisitions. The company has an objective to become one of the top 10 telecom operators globally by 2010 in terms of market capitalization, revenues and profits.
*Using a sum-of the-parts valuation method, we reached a target price for Etisalat of AED 24.2/share, implying a 28% upside potential to the current price of AED 18.9/share. Hence, we initiate coverage on Etisalat with a BUY recommendation. The stock now trades at a price to 2006E earnings of 14.8x and EV/EBITDA 2006E of 6.4x.
*We also initiated coverage on Etihad Etisalat (Mobily), in which Etisalat owns 35%, with a Buy recommendation and price target of SAR 108/share.
Source: Shuaa Capital
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