With the country’s largest telecom company, Pakistan Telecom (PTC), acquiring 3G license through its cellular subsidiary Ufone, the industry analysts expect the consolidated earnings of PTC to increase by 10-30 percent during the next three years, 2015-17.
Topline analyst Muhammad Tahir Saeed opines that although the auction may have negative implication in the short run on the cash flows of the company and may affect its ability to pay dividend in 2014, the PTC is expected to benefit going forward.
The stock is trading at 2014E and 2015F PE of 7.8x and 6.7x and offers an upside of 18 percent, inclusive of dividend, he added. Moreover, the analyst said assuming zero value of PTC’s landline, wireless and broadband segments, Enterprise Value (EV)/subscriber of Ufone arrives at US$48.
“This compares favorably with US$99 EV/subscriber that SingTel got when it sold its 30% stake in Warid in 2013 and US$97 EV/subscriber that PTC was willing to pay for the 100% stake in Warid to Abu Dhabi Group – a deal which didn’t get through,” said Saeed.
To recall, Pakistan held its first long awaited next generation spectrum license auction on Apr 23, 2014 and raised US$1.1bn. Out of the total five cellular operators in the country, Mobilink, Telenor, Zong and Ufone acquired 3G license while, in an aggressive move, Zong also bought 4G license.
“We believe addition of new spectrum will bode well for the cellular operators in Pakistan in shape of new high growth market segment and higher ARPUs (Average Revenue Per User),” Saeed said. Ufone acquired 5Mhz 3G spectrum for US$147.5mn.
“Though Ufone has the option to pay total amount upfront, but we believe the operator will opt for 50% (US$73.8mn) license fee upfront payment while the remaining would be paid out in the next 5 years which carries interest charge of LIBOR+3%,” he said.
On standalone basis, Ufone is likely to face liquidity shortfall till 2015 due to license fee payment and CAPEX requirements that will be bridged through inter-company loans.
“We have assumed Rs7.4bn license fee payment in 2014 (and Rs1.5bn per annum for the next 5 years) in addition to the annual 3G related CAPEX of Rs10bn,” said the analyst.
