Vodafone Egypt deal to foster Saudi STC's regional growth plans: experts

The non-binding deal values Vodafone Egypt at $4.35bln

  
A man passes the Saudi Telecom STC office in Riyadh, Saudi Arabia February 6, 2018. Image used for illustrative purpose.

A man passes the Saudi Telecom STC office in Riyadh, Saudi Arabia February 6, 2018. Image used for illustrative purpose.

REUTERS/Faisal Al Nasser

Saudi Telecom Company’s initial agreement to purchase Vodafone’s 55 percent stake in Vodafone Egypt for $2.39 billion is a deal that paved the way for further growth for the Riyadh-listed company as it seeks to expand regionally, experts said.

“It is not a bad deal for STC who has always been open about acquiring good opportunities,” Talha Nazar

Head of Research at Aljazira Capital told Zawya.

“There is high growth potential in the Egyptian market that has the biggest population in the region, with penetration levels that could reach 100 percent,” Nazar added.

Vodafone Egypt is the country’s biggest mobile operator, with a 40 percent market share. Vodafone Group expects the deal to be completed by the end of June 2020.

The non-binding deal values Vodafone Egypt at $4.35 billion and will include the use of the Vodafone brand, and a range of other Vodafone services, a statement by STC said.

Tadawul-listed STC is 70 percent controlled by PIF, Crown Prince Mohammed bin Salman’s main investment vehicle. 

On why STC should buy into Vodafone’s stake, Pritish Devassy, Head of Equity Research at Al Rajhi Capital told Zawya: “The telecom market in Saudi is mostly saturated and STC has been looking for growth alternatives by making use of its huge cash position of around 11 billion Saudi riyals.”

“Given the currently depressed valuation multiples in Egypt, Vodafone Egypt may be a good buy. The acquisition price is around 7.5x in terms of EV/EBITDA as compared to STC’s own 8.5x and we believe there are opportunities for growth in mobile data for this acquisition to be successful,” Devassy added.

According to STC, which also operates in Kuwait, Bahrain and Malaysia, the potential transaction is in line with its growth strategy and is expected to create value for the company and its shareholders.

The deal would be the Saudi Telecom giant’s largest since it acquired 35 percent of Oger Telecom for $2.6 billion in 2008.

A final price on the deal would depend on terms agreed after a due diligence is completed by both the parties.

Egypt has more than 92 million subscribers according to Aljazira Capital’s Nazar and is mainly prepaid centric.

“Telecom subscribers in Egypt have a prepaid bias, which has kept the average revenue per user (ARPU) under check. Shift towards postpaid subscribers will help the sector in maintaining higher ARPU,” Nazar said.

(Writing by Gerard Aoun; editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2020

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