The achieved business results of Telecom Egypt (TE) during the third quarter (Q3) of 2016 have surpassed average expectations of research departments in investment banks and brokerage companies, as the company recorded net profits worth EGP 868.1m, with an increase of 11.9% compared to investment banks’ expectations of EGP 775.5m.
The noticeable improvement of TE’s incomes during Q3 have neared the expectations, as achieved incomes reached EGP 3.309bn, compared to average expectations of EGP 3.282bn.
Even though net profits of the company during Q3 exceeded expectations, they declined by 27.85% compared to profits during the same period in 2015, which reached EGP 1.203bn. Financial experts attributed this to the restoration of the company’s incomes in Q3 of 2015 with a total income tax previously paid worth EGP 663.3m.
TE recorded net profits worth EGP 3.185bn during the first nine months of 2016, compared to net profits worth EGP 2.136bn during the same period in 2015, with a 49.11% growth.
Mohamed Hamdy, a financial analyst in Mubasher International Securities, said in a research report that the reason TE’s net profits surpassed expectations is basically the noticeable growth of the company’s investment revenues, especially those flowing from its 45% shares in Vodafone Egypt.
He explained that investment revenues recorded EGP 421m during Q3 from Vodafone Egypt, surpassing the company’s expectations by 17%.
Hamdy pointed out in his report that part of the improvement of the profits is also due to the growth of revenues in Q3 of 2016 with an annual rate of 13%.
The financial analyst attributed the growth of home services income by an annual rate of 21% to the high demand on data services, in addition to the growth of enterprise solutions incomes, with an annual rate of 12%.
He also pointed out the growth in the number of international customers and networks by an annual rate of 75%, recording EGP 257.6m. The growth of the domestic wholesale sector by an annual rate of 9.5% jumped to EGP 766m during Q3 due to the increased demand on the infrastructure services offered by TE to mobile operators and internet service providers (ISPs).
The financial analyst stressed in his report that TE will face challenges to offer 4G services after its obtainment of necessary licensing. The main reason of the challenges is the expected high expenditures and operating costs, as well as licensing costs, which are expected to pressure profitability and liquidity.
Tamer Gad-Allah, CEO of TE, said that the company has managed to implement its plan of paying more attention to retail services, in addition to maintaining the wholesale businesses.
He added that Q3 of 2016 has witnessed a continuous growth of business units in a way that serves the company’s orientation towards becoming an integrated operator, and focusing on customers’ needs.
Broadband revenues have also witnessed a noticeable growth and an increase of the number of subscribers, which stresses that the high-speed internet “broadband” will be the real engine of growth in the future, according to Gad-Allah.
He stressed that the 4G operating experience carried out by TE has proved that the company is technically and commercially ready to offer the service in the market, especially that the company is looking forward to offering integrated packages of solutions and services once it obtains its frequencies.
Pharos Holding said in a research report that TE is facing new challenges especially with new mobile companies obtaining 4G licences which come with offering landline services. This creates competition in the market of landlines.
“Despite the revenues achieved by TE through its share in Vodafone Egypt, the destiny of this investment is still vague,” according to the report.
TE seeks to exit its Vodafone share as part of its transformation to provide mobile services after its obtainment of the 4G licences.