AGR Revises Maroc Telecom’s Target Price

Maroc Telecom has published half-yearly results for 2022 in a context that is not very favorable to revenue growth, according to Atijari global research (AGR) in its recent note on the stock, recalling that the first half of the year was marked by the provisioning of the incumbent operator for a fine of $232.7 million (2.45 billion dirhams).

In this perspective, the research company announced the revision of its growth assumptions for the telecoms group and, consequently, its valuation of the stock. Thus, instead of a target price of $14.52 (150 DH), AGR is revising its outlook downwards to $12.7 (134 DH) at the end of the current fiscal year. “Based on a stock market price of $11.5 (121 DH) (as of August 24th, 2022), we believe that the recent correction of the share remains disproportionate to the quality of its fundamentals,” said AGR.

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Points to remember

In its analysis of the outlook for Maroc Telecom shares, AGR has based itself on several aspects. Indeed, the company notes that regulatory and competitive pressures in Morocco are increasingly felt on the group’s mobile revenue growth profile. AGR’s analysts note that this pressure is caused by “limited room for maneuver in terms of offers & promotions compared to competitors, stricter supervision of specific B2B offers, and a continued tariff asymmetry in favor of the incumbent operator”. That said, its fixed-line revenues in Morocco and its international activities show a good resilience of Maroc Telecom thanks to the continued expansion of the “ADSL & Fiber Optic” customer base and to the sustained growth of Mobile Data in Africa.

However, AGR assures that the growth of the Mobile revenues of the African subsidiaries is slowed down by the downward trend of call termination (CT) whose impact should continue in 2023. In line with this, AGR believes that “inflationary pressures in Morocco are expected to further impact mobile revenue growth in the second half of this year.” This view is supported by the historical correlation between the general price level and telecom spending, particularly among prepaid mobile users.

It should be noted that the latter represent about 90% of the mobile customer base in Morocco. In addition, and in an unfavorable context for cash generation, AGR has observed a downward readjustment of the distribution rate. This has gone from a historical level of around 100% to an average of 70% over the period 2019-2021. “According to our own scenario, the target payout of the group would now be between 70 and 80% during the period 2022-2023.” On the other hand, and taking into account the recent correction of the Maroc Telecom share, AGR believes that the dividend yield offered becomes relatively more attractive with “an average D/Y of 4.5% over the period 2022-2023 against 3.5% for the Equity market.”

The Fixed-line segment will continue to grow in Morocco

Regarding Maroc Telecom’s local business, AGR analysts maintain their forecast of a downward trend in the Mobile business over the period 2022-2025, due to inflationary, regulatory, and competitive pressures. They forecast a CAGR of -4.3% for revenues, and a positive CAGR of 1.8% for the Fixed-line segment, supported by the dynamics of Data and more particularly FTTH. It is estimated, moreover, that the telecoms group “is able to defend an EBITDA margin of around 56% in the medium term, due to its expertise and its already proven ability to control its costs”. On the other hand, AGR opts for a relatively high CAPEX/CAE ratio of 16% due to the additional efforts required by the new context.

Moderate growth in international activities

As for the subsidiaries, AGR expects them to grow at a moderate pace, with a CAGR in revenues of between 1.5% and 2.5% over the period 2022-2025. The EBITDA margin is expected to improve slightly, driven by the potential of the new Moov subsidiaries to optimize their cost structure. AGR is thus maintaining its forecasts, with a high CAPEX/CAD ratio of between 18 and 20%, in line with the average observed during the 2018-2021 period.

Dividend yield still attractive

In an unfavorable environment for cash generation, marked by increasing regulatory pressures, a slowdown in the growth of Mobile revenues and the maintenance of a sustained investment effort, AGR observes “a readjustment of Maroc Telecom’s distribution policy. During the period 2019-2021, the average payout has dropped to 70% from a historical level close to 100%.” As a result, and according to the scenario of the research company, the target payout of the telecom operator would now be between 70 and 80% over the period 2022-2025.

Under these conditions and taking into account the stock market correction, the dividend yield offered would still be attractive. It is an average D/Y of 4.5% on the MT against 3.5% for the Equity market. During the period 2022-2023, AGR notes that Maroc Telecom would be in a perspective of preservation of a recurrent earning capacity of $550,886 to $570,000 (5.8 to 6 MMDH). To this end, the level of payout adopted would be the main parameter able to impact the share price on the Stock Exchange.

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