Finding a true gem in the glittering jewels of the Middle East telecommunications sector is not as easy as one would think. Several regional operators, such as Qtel, Saudi Telecom, Etisalat and Orascom Telecom, have reported healthy earnings for the past year. After all, using a mobile phone is a fairly recession-proof necessity. One company stands out for JPMorgan Chase's Christian Kern. Mr Kern, a respected telecoms analysts in the Middle East, has named the Saudi Arabia operator Mobily, which trades as Etihad Etisalat, as his top regional telecoms pick after his firm began coverage of several telecoms last week. "We believe Mobily is in a strong position to benefit from overall telecoms growth in Saudi Arabia and we forecast an earnings-per-share compounded annual growth rate between 2009 to 2012 of 10 per cent," Mr Kern said.
"Mobily generates healthy, positive free-cash flows and is well financed, with a 2009 net-debt-to-Ebitda [earnings before interest, taxation, depreciation and amortisation] ratio of 1.6 times, improving to 0.9 times in our estimates for 2010." Mr Kern initiated coverage in Mobily with a price target of 60 Saudi riyals (Dh58.7) for December this year and an "overweight" rating. He also assigned Wataniya Telecom a price target of 2.20 Kuwaiti dinars (Dh28) for December this year. JPMorgan Chase issued a price target of 9 rials (Dh9) for Vodafone Qatar for March next year and 11 riyals on Zain KSA for December this year.
It is a good time to invest in Middle East telecoms, Mr Kern said. The industry provides good valuation support to each of the companies, presenting a favourable risk-reward profile not only for MENA benchmark funds, but also for absolute return funds and global emerging market funds taking off-benchmark risk. And mobile competition hovers around "moderate" levels, fostered by each country's regulator, mixed refinancing requirements and a robust mergers and acquisitions outlook within the sector, he said.