x Abu Dhabi, UAEWednesday 17 January 2018

Investors remain keen to keep dialling up du

The UAE's second telecoms operator, du, remains a top pick for many investors as it continues to gain market share

The UAE's second telephone company, du, continues to impress investors.

After record fourth-quarter profits for last year, solid revenue growth and margin expansion are anticipated for the company, Shuaa Capital said in a note to investors yesterday.

Shuaa Capital is the latest brokerage firm to back the telecoms company, and yesterday initiated a "buy" recommendation and a Dh4.03 price target.

Although the UAE has one of the world's highest mobile penetrations at about 200 per cent, du has continued to gain market share from bigger domestic rival Etisalat. Shuaa estimates du's share of UAE active mobile subscribers will reach 50 per cent in the coming years, from about 38 per cent last year.

Its share price was up 1 per cent to Dh3 yesterday. It was one of the top gainers on the Dubai Financial Market index.

Investors have flocked to du shares in the past few weeks because it fits the bill of a "defensive stock", or a stock that does well at a time of economic trouble.

It has generally been a reliable stock for investors to help diversify away from the property and banking sector, which have been under strain from debt woes coming out of the financial crisis.

Increased mobile data usage and a lower-than-expected royalty charge helped the operator to post record fourth-quarter profits for last year.

The operator also reported annual net profits last year increased 396 per cent on 2009, even after deducting royalty charges of Dh1.31 billion. Revenues rose 32 per cent to Dh7.07bn.

The lower royalty charge as well as a number of vendor financing agreements helped du to report annual positive free cash flow for the first time with a gain of Dh33 million.

The country's regulator recently reiterated there were no plans for a third operator. As a result, Shuaa Capital said, du should continue to attract subscribers.

Given du has also been offering fixed services only in select areas of Dubai, it has captured just a 12 per cent market share of UAE broadband subscribers. That figure is expected to increase as its service area expands.