Saudi Telecom Company (STC) is placed to reverse a recent decline in its stock price as an international expansion pays off and it strengthens its lead over rivals at home, analysts say.
The kingdom's biggest telecommunications company is second only to Etisalat as the Middle East's largest operator by market capitalisation, and also has a strong position in its native market.
STC answered analysts' calls for greater disclosure in its latest quarterly reports, which led NBK Capital to re-initiate coverage of the stock with a "buy" rating. Growth in Turkey is reaping rewards for STC, but the company is also in line for substantial benefits should a deal to share phone masts between Saudi Arabian telecoms operators materialise, the report said.
"We believe the companies might enter into an agreement to merge their tower assets during 2012," leading to considerable savings for STC, NBK said.
STC's net income of 1.5bn Saudi riyals for the third quarter of the year was less than half than in the same period a year earlier, much of it driven by 780 million riyals in currency losses because of the weakness of the US dollar.
The stock has had a difficult year, sliding 22 per cent since January, compared with a decline of only 6.8 per cent on the wider Saudi Tadawul All-Share Index during the same period. The company's rapid overseas growth has meant funds that would have been earmarked for dividends in the past have been spent on expansion instead.
STC generates more than two thirds of its revenues in Saudi Arabia, but is seeking to reduce this concentration to half.
Focusing on broadband would give STC an edge on competitors such as Mobily and Zain Saudi in its home market, said Umar Faruqui, a telecoms analyst at Global Investment House. "One of the advantages of STC being the incumbent operator is that they can package products," he said. "They have fixed-line, mobile and broadband for offering IPTV. This is a luxury that Mobily doesn't have."
