Strong growth potential, flat expenditure and the announcement of a cash dividend for last year all bode well for the UAE telecommunications operator du, say analysts.
The company, listed in Dubai, announced its first cash dividend last week. The payment of 15 fils per share reflects the "solid financial position" of the company, said Ahmad bin Byat, du's chairman.
The company's shares edged up by 0.31 per cent yesterday to close at Dh3.21 amid positive sentiment about the operator's prospects.
Ibrahim Masood, a director and senior investment officer for asset management at Mashreq, said there was room for the operator to grow. Last week's dividend announcement, plus forecasts on infrastructure investment, are positive signs, the executive said.
"We still believe there is a fair bit of growth in du," said Mr Masood.
"The dividend got a good reception because value investors generally like an actual cash yield," he said. "Their capital expenditure is likely to be flat year on year. Their operational cash flows are much stronger."
Du, which launched services in 2007, has rapidly built its market share in the lucrative mobile-phone sector. It is approaching parity with Etisalat, the UAE's bigger operator, in the number of mobile subscribers.
However, the UAE telecoms sector is becoming increasingly competitive. Despite the duopoly in the market, the average revenue per user (Arpu) has been steadily falling. According to Arab Advisors Group, the Arpu was forecast at US$30 last year, a decline on 2009 figures.
Mr Masood said the biggest challenge faced by du was how to expand its business amid greater competition from its rival.
"What you don't want is for du to participate in an aggressive price war with Etisalat," he said.
Du's net profit before royalty paid to the UAE Government grew to Dh1.8 billion last year, a 48 per cent increase on the previous year. However, the fee the operator must pay was raised, which meant du's net profit after royalty was Dh1.1bn.
