Telecoms

Company Overview

Maroc Telecom (MT) is the leading telecoms operator in Morocco. In January 2015 MT acquired six additional sub-Saharan subsidiaries. The international portion of the business now contributes more than 40% to company revenue. In Morocco the firm operates in both the mobile and fixed segments, while in sub-Saharan Africa it is only involved in the mobile market. The stock trades on the Casablanca Stock Exchange and accounts for over 20% of its total market capitalisation.

MT is poised to recapture some of its lost glow in Morocco amid strong competition, as the sub-Saharan subsidiaries are expected to deliver substantial growth. The region’s mobile penetration rate is expected to grow rapidly along with higher smartphone penetration, which is likely to reshape the sub-Saharan telecoms landscape. MT has an excellent track record in market share gains and margin expansion in the subsidiaries held prior to 2015 (Mauritania, Gabon, Burkina Faso and Mali), and it is likely to leverage this learning curve to reiterate the same success in the newly acquired subsidiaries in Côte d’Ivoire, Benin, Togo, Gabon, Niger and the Central African Republic.

In 2015 the company’s consolidated revenue stood at Dh34.13bn (€3.1bn), up 1.6% year-on-year (y-o-y) on a like-for-like basis. While Moroccan operations recorded a modest decline of 0.5%, the sub-Saharan subsidiaries generated growth of 6.9%. Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 0.7% y-o-y on a like-for-like basis due to the international subsidiaries’ jump in EBITDA. Capital expenditure to revenues, excluding licences and frequencies, stood at 18.2%.

In 2015 the Moroccan mobile business showed some resilience but remained anaemic as a result of the elasticity of usage further decreasing and not counterbalancing the drop in average revenue per minute amid a fiercely competitive environment. Average revenue per user in the mobile segment declined by 5% amid a stabilising customer base supported by a strengthening high-value-added postpaid customer base counterbalancing the decrease in the pre-paid customer base due to the ban on multiple SIM cards. Data is the main driver of growth in Morocco. Mobile-data customer base soared by 36.3%, while the number of broadband lines jumped by 15.4%. Growth was sustained in existing international subsidiaries and growth accelerated in the new subsidiaries, mainly in Niger and Côte d’Ivoire, the latter being a key market for the operator. Operating cost-control counterbalanced the negative effect from new taxes in some subsidiaries.

Outlook

The regulator has adopted a new guideline, which has revised the method for setting the cost price of services offered by operators. In Morocco, operators cannot price their services below their cost price. The cost price of service will now be computed as the sum of fixed costs and variable costs versus variable costs only before. Thus the minimum regulatory price should be lifted automatically. Before this new guideline, MT had a growth profile that corresponded with a group rapidly expanding in sub-Saharan Africa, but this growth did not compensate for the fall in revenue in Morocco due to the mobile price war. With this new development, we believe that mobile prices should reach an inflection point in 2016, so we revised our 2015E-25E revenue upwards, as well as our compound annual growth rate to 3.7% We believe the external growth that the company is trying to capture, along with the prospect of the Moroccan market stabilising in the coming years, is providing the company with a decent risk-return profile, which makes it fall in the defensive stocks basket, particularly when taking into account the high level of dividend yield at 5% per annum, compared to the market median dividend yield of 4.8%.