Warid deal gaining momentum – AHL Research
By: Numair Ahmed,
Arif Habib Limited
Update on the Warid Telecom deal
With the ongoing developments regarding the Abu Dhabi Group sale of its 100% stake in Warid Telecom Private Limited (WTPL), Etisalat (parent company of PTC), has recently hired Goldman Sachs as its advisor on the planned bid for Waird Telecom (WTPL) while the sellers (The Abu Dhabi Group) are being advised by Standard Chartered and Lazard. As highlighted in detail in our Morning Call (26th Jun’13), the potential size of Warid acquisition is expected to be worth around USD 1.0bn (PKR 25.83/share), almost double the price at which Abu Dhabi Group had bought back 30% stake from Singtel of Singapore back in Jan’13. Since Etisalat is directly foreseeing the Warid deal, it may be expected that the funding of the deal may get financed solely by the parent company of PTC itself.
BAFL; Warid sale a potential bottomline booster for BAFL
Bank Alfalah Ltd (BAFL) holds an 8.24% stake in WTPL, translating into a total value of ~PKR 4bn. Most of which has already been provisioned, resulting in net of provision value of PKR 0.6/share. As per our estimates, every PKR 1/share gain should add PKR 0.24/share to BAFL’s bottomline. We have outlined the earnings sensitivity of BAFL at different acquisition price of WTPL below:
BAFL’s scrip is currently trading at PBv and PE of 0.87x and 6.37x based on our CY13 forecast, and since our last update on 26th Jun’13, the stock has appreciated by 15.43% where we tagged BAFL a Price Target of PKR 21.2/share with an attractive full-year DPS of PKR 2.00 (DY 9.2%). We currently have a ‘Hold’ recommendation on the scrip.
Warid deal’s impact on PTC earnings
As we underlined in our update earlier (in 26th Jun’13 write-up), an influx of Warid users on Ufone’s network, would increase their existing user base of 23.9mn subscribers (as of May’13) to 36.4mn subscribers, bringing them in line with the market leader Mobilink (36.7mn subscribers). In this manner, given the deal is completely funded by the parent company (Etisalat), there is expected to be PKR 0.47/share positive impact on PTC’s annualized earnings (21% average), if Warid users are added to Ufone’s network from CY14 onwards.
Grey traffic monitoring equipment being installed
As per our checks with industry sources, with the rampant rise in grey trafficking, LDI operators are set to install grey traffic monitoring equipment to curb illegal incoming traffic through the internet. Such equipment implementation has been in the pipeline for some time, but now looks set for installation by Aug’13. Curbing illegal grey traffic does appear to be a mammoth task (with grey traffickers on the rise since ICH came into being in Oct’12), only time and LDI monthly minutes for August would suggest if the monitoring equipment has been effective to some extent.
We currently have a ‘Hold’ stance on PTC with our Price Target of PKR 30/share (offering a 7% upside from current levels) with the scrip trading at PBv and PE of 1.20x and 9.38x as per our CY13 estimates. We also expect another payout of PKR 1.0/share as final cash dividend, bringing total dividend payout for the year to PKR 2.0/share (7.1% DY).