2024-03-19 16:41:08
Dubai: Khaled Musa
S&P Global Ratings said that high growth rates, wide business diversification, and low capital intensity are all factors that push Gulf telecommunications companies to invest in the field of technology. This came in a report published by the agency today entitled: “Gulf telecommunications companies are turning into technology companies.”
According to the report, the mature telecom markets in the Gulf region, with mobile phone penetration rates ranging between 130% and 210%, offer limited organic growth prospects for telecom companies. Therefore, these companies are looking for new ways to expand their business and diversify their revenue sources.
The agency expected “E&T’s EBITDA margin, which reached 43.7% in 2023, to rise by 300 to 400 basis points in 2024, thanks to the change in the royalty system in the UAE, and by another 200 basis points, due to the change.” In accounting after Vodafone became an associate (under our standards, profits from associates are added to EBITDA).”
Low indebtedness
Tatjana Leskova, a credit analyst at the agency, said: “We do not expect the increasing contribution of revenues from operations not related to telecommunications activities to have an impact on the credit ratings of classified Gulf telecommunications companies during the next two or three years, and we expect their debt to continue to decline.”
“But, in the long term, we will consider the potential impact of the changing business mix of these companies, competitive threats, and the ability to balance growth and debt on the credit ratings of these companies,” Leskova added.
According to the report, the growth rates of international companies affiliated with telecommunications companies in the Gulf Cooperation Council countries in developing countries, which have large customer bases and a rapidly growing population, are higher in local currencies than those in the GCC region.
The latter have smaller subscriber bases, with the exception of Saudi Arabia, which is the largest telecom market in the GCC and whose relatively low mobile penetration rate among the peer group offers stronger upside potential. Geographic diversification risks include currency depreciation, higher cost inflation, competitive pressures and higher country risks. The geographical diversity of telecommunications companies in the GCC countries, and the revenues they achieve outside their local markets, varies greatly, reaching 69% for “Ooredoo” as of the end of 2023, 52% for Bahrain Telecommunications Company, 36% for Emirates Telecommunications Group Company, and about 12%. To Saudi Telecom Company.
Technical services
The report noted that “classified Gulf telecommunications companies – including Beyon, e&, Ooredoo, and STC – aim to enhance their technical services, and have expanded their non-telecommunications businesses over the past few years. Further momentum has been stimulated by recent strategy announcements.”
The report pointed out that “Etisalat separated its telecommunications operations from its other technical businesses in 2022. It became an “E&” company, but it retained the Etisalat brand for telecommunications operations in its local market in the Emirates.”
The agency noted in its report that “the digital transformation and economic development agendas of the GCC governments will work to support digital companies and enhance the consolidated revenues of telecommunications companies.” Our estimates indicate that non-telecom operations currently contribute about 15% – 16% to the combined revenues of these companies,” noting that “digital companies achieve higher revenues in the case of the most advanced telecommunications companies – including stc and e& – compared to Ooredoo and Beyon. While core telecom services will continue to generate the majority of revenues and remain a source of huge profits in the short term, we expect digital businesses to grow at a much faster pace.”
The agency expected that “global software and services companies with investment classification will expand by 8%-10% during the period 2024-2025, compared to 1.5%-3% for international telecommunications companies with investment classification.”
She noted that “E&’s recent announcement to generate 40% of revenues from technology companies, by 2030, can be achieved with a combination of organic and external growth.”
An alternative to banks
The report indicated that telecommunications companies in the GCC countries provide a suitable alternative to traditional banks in some products and services. However, the financial technology services provided by these companies differ in terms of their breadth and risks. Some of them have created fully licensed digital banks, such as STC Bank – which is 85% owned by STC, 15% by Western Union, and E&E, which owns a 25% stake in WEU. Beyon Money has received an open banking license, while Ooredoo Money and e&Money operate as mobile wallet services. In addition, E& Company owns another electronic wallet service, through its share in the “Careem Super App” application. The integration of digital banking means that telcos must adhere to bank regulations, capital requirements and more stringent risk and compliance monitoring frameworks for their fintech operations.
Financial technology
According to the report, telecommunications companies in the GCC countries are developing their own financial technology services in their local markets in the Middle East, where a large number of expatriates widely use remittance services. These companies benefit from retaining their large customer base to drive growth. For example, E&M reported a six-fold increase in remittances in 2023 for its e-finance app.
The report pointed out that “E& offered to pay 2.15 billion euros, in exchange for a 51% stake in the telecommunications operations of the BBF Group in Europe, and offered $385 million, in exchange for a 100% stake in Telenor Pakistan, through its subsidiary, BTCL.” ». Furthermore, E& gradually increased its stake in Vodafone to 14.6%, with E& CEO being appointed part of Vodafone’s board of directors. Based on the strategic agreement between the two companies, “E&” can increase its share to 24.9%.”
1710868816
#expects #EPs #profit #margin #rise #basis #points