Emirates Integrated partners with Nokia to deploy commercial 5G Cloud RAN

Emirates Integrated Telecommunications, in partnership with Nokia have deployed the first commercial 5G Cloud RAN solution in the Middle East and Africa region. The UAE based telecom company would take support and utilize the Finnish telecommunications group’s flexible anyRAN approach to expand its 5G network and offer new services in the region.

Emirates Integrated Telecommunications Company, with inception in 2006, offers services in mobile and fixed communications, broadband connectivity, home entertainment and ICT services across the UAE. On a segmental basis, the mobile segment contributed AED6.1bn, the Fixed segment provided AED3.7bn, and the Other segment contributed AED3.8bn in FY23. In terms of shareholding, Emirates Investment Authority holds 50.12% of the company, while public shareholders hold 20.12%. The remaining portion of the company is owned by Emirates Communications and Technologies Company at 19.70%, and Mamoura Diversified Global Holding PJSC holds 10.06%. The Group employs over 2,800 people.

Surge in postpaid customer base

In 3QFY24 the company witnessed 2.7% YoY growth in mobile customer base to reach 8.3mn subscribers, with 71,000 net additions during the quarter. The growth was primarily driven by a 12.5% rise in the postpaid customer base, aided by B2B initiatives and compelling consumer offers, including unlimited data plans and special roaming bundles for the holiday season. On the other hand, the Group’s prepaid customer base remained broadly stable at 6.5mn customers.

The company also revamped their B2B portfolio, where it introduced two new operating sub-brands - du Tech and du Infra, which reflects the strategic shift to drive digital transformation across the services. Emirates Integrated Telecommunications also forged a global partnership with Orange to support innovation and digital transformation, highlighting the Group’s focus on leveraging the expertise of global operators.

Further, the company has expanded their portfolio with the deployment of 5G SA and AI technologies and has set the stage for transformative digital adoption by the various stakeholders. As a result of the discussed transformative initiatives, the company has reaffirmed its FY24 guidance and anticipates revenue to grow by 5-7% YoY, with EBITDA margin above 43%.

Financial performance trending at a high

The company delivered a modest CAGR of 1.2% in revenues over the period FY14-23 to reach AED13.6bn. However, the operating income performance was muted during the period, reaching AED2.2bn in FY23 from AED3.7bn in FY14. The local peer, Emirates Telecommunications Group also witnessed a similar revenue CAGR of 1.1% during the same period under consideration. Operating income performance remained broadly flat, depicting a marginal CAGR of 0.6% to reach AED12.3bn in FY23.

Emirates Integrated Telecommunications delivered 9.1% YoY growth in topline to AED3.6bn in 3QFY24, riding on strong commercial momentum. EBITDA grew at a faster pace of 16.9% to AED1.7bn, demonstrating a record EBITDA margin of 48.3%. Consequently, net profit went up 42.7% to AED 0.7bn, which is the highest quarterly profit in the last three years. The Group delivered improved free cash flow performance, compared to the previous corresponding period, aided by moderation in the capex intensity, as well as complemented by a robust rise of 28% in operating cash flow to AED1.2bn.

The company has maintained impressive dividend yields over the past decade, registering 6.6% in FY23 for a total dividend of AED0.34 per share. Dividend per share is expected to increase to AED0.45 in FY24, which would represent a yield of 5.7%.

Valuation justified by the fundamentals

The company’s stock is trading at a P/E multiple of 14.4x, slightly higher than the global peer average of 12.8x. The valuation is also higher in comparison to the local peer Emirates Telecommunications Group, which is trading at a P/E of 13.7x. However, valuation is cheap compared to the historical 10-year average 16.1x. The stock has delivered solid returns of over 36% in the past one year. Notably, the stock has risen by over 4% in the past one month, providing further momentum to the prices.

Out of the 8 analysts covering the stock, 2 have a ‘Buy’ recommendation, and 3 gave an ‘Outperform’ rating for an average target price of AED8.4, suggesting an upside potential of approximately 7% from the current market price. The recent run-up in prices means that the stock is close to the target price with limited upside potential, however, any correction in the near term could provide a decent opportunity for investors to evaluate the company. Moreover, the analysts have projected net sales to grow at a CAGR of 3% over the period FY24-26 to reach AED15.4bn, depicting an encouraging outlook for the company.

Overall, Emirates Integrated Telecommunications Company has the potential for long-term growth, backed by robust fundamentals, encouraging cash flows and a rise in subscriber base. Additionally, a high dividend yield could encourage more investors to participate in its growth story. However, the company is prone to impacts from geopolitical and global climate risks. The changing economic landscape and impacts from geopolitical tensions could have an impact on the organisation's short and long-term performance. The changing regulatory landscape can further compound the challenges, impacting the overall performance of the company.