Global Investment House - The year 2007 was a turning point for Jordan Telecom Group as the group re-branded its activities into the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Orange brand. It also marked the group's first investment outside of Jordan by acquiring a 51.0% stake in Lightspeed Bahrain. Net profit for the group stood at JD94.5mn in 2007 compared to JD86.9mn in 2006, about 2.1% lower than our estimate.
Our valuation for the stock is supported by a combination of DCF Method and Relative Valuation Method. Under the DCF method, we have arrived at a fair value of JD5.46. For peer group comparison, we have used a peer group P/E of 10.1x, which resulted in a fair value per share of JD4.22 based on forecasted earning for FY2008. Assigning an 80% to the DCF value and 20% to the relative value, we have reached a fair value for Jordan Telecom of JD5.21 per share and given the stock's closing price of JD5.29 per share on September 16 2008, the stock is trading at 1.4% above the fair value. Therefore, we revise our earlier "Buy" recommendation on Jordan Telecom's stock to "Hold".
Financial Performance 1H 08
Consolidated revenues during 1H-08 registered a minor increase of 0.3% to reach JD196.3mn, compared to JD195.7mn recorded during the corresponding period of the previous year. Although both revenues from Orange Internet and Orange Mobile increased by 31.4% and 10.1% respectively, the 9.4% decline in revenues from the fixed line segment which forms 50.0% of the group's revenues flattened the group's top-line in 1H-08. During 1H-08, Lightspeed, the group's first investment outside Jordan, reported revenues of JD535,000.
EBITDA grew by 7.5% to reach JD90.7mn, with an EBITDA margin of 46.2% compared to an EBITDA margin of 43.1% reported in the comparative period in 2007. Operating expenses declined by 5.2% in 1H-08.
EBITDA margin for the fixed segment improved to reach 46.9% in 1H-08 compared to 41.6% in 2007 due to the decline in interconnection costs and the recovery of bad debts. Orange Mobile witnessed a slight improvement in EBITDA margin from 37.2% in 2007 to 37.4% in 1H-08. Also, Orange Internet exhibited a slight improvement in EBITDA margin from 14.9% in 2007 to 15.3% in 1H-08.
Net profit during the first half of 2008 increased by 12.1% to reach JD52.1mn compared to JD46.5mn recorded in the corresponding period of the previous year.
Despite intense competition in the mobile market, the group managed to increase its market share from 32.4% at the end of 2007 to 34.2% in 1H-08 Orange fixed was able to maintain its 98% market share of fixed lines, while Orange Internet commanded more than 50.0% of the internet market, with both segments recording no change from year end 2007.
Outlook
The year 2007 was a turning point for Jordan Telecom Group as the group re-branded its activities into the Orange brand. It also marked the group's first investment outside Jordan by acquiring a 51% stake in Lightspeed Bahrain. We believe that the internet segment will continue to be the best performer of all the three segments especially after the "Lightspeed Bahrain" acquisition which will boost internet revenues. Also, despite the intensive competition in the mobile market, the group has managed to enhance its market share in the mobile segment and push up its subscribers' base through loyalty programs and promotions.
Going forward, we believe that competition will be tough in the mobile segment as operators will continue to offer discounted prices in order to increase their market shares. We believe that growth in the mobile segment will be mainly driven by Value added Services (VAS). The group has a strong cash position and is investing heavily to expand and improve the quality of its mobile and broadband networks, which should compensate for the decline in the fixed segment's subscribers' and revenues.
