Telecom Egypt boost hinges on dividend

What's Down: Shares in Telecom Egypt (TE) are forecast to rise by 32 per cent if the company chooses to pay out a bumper dividend this year.

Shares in Telecom Egypt (TE) are forecast to rise by 32 per cent if the company chooses to pay a bumper dividend to shareholders this year.

Egypt's incumbent fixed-line telephone monopoly has more than 5 billion Egyptian pounds in cash, and analysts say it is under pressure from the government to issue a high dividend this year.

In a research note, HC Securities & Investment said it expected TE to issue a dividend of 0.39 pounds at the end of this month.

This could be followed by an additional dividend issued in March that is forecast to prompt a share-price boost, HC Securities said in a note. "TE can increase [its dividend per share] to 2 pounds … while maintaining cash balance at 5.9bn pounds, in our view," the note said.

This would give the company a share price target of 18.5 pounds, according to HC Securities.

"If the company announces a dividend today of 2 pounds per share, we think the stock price can go up to around 18 pounds," said Karim Khadr, the regional head of research and senior telecoms analyst at HC Securities.

Mr Khadr cited "pressure" from the government, which owns 80 per cent of TE, on the company to pay a high dividend

He added the markets could react negatively if a significant dividend was not paid. "If it happens, buy the stock," Mr Khadr said. "If it doesn't, the stock will not move. In fact, the stock may come under pressure."

Ibrahim Masood, a senior investment officer for asset management at Mashreq, said TEwas a potential source of cash for the Egyptian government. "It's not rocket science that the Egyptian government is in greater need for cash than normal at the moment," he said.

Despite the cash on the company's books, Mr Masood said the TE had few prospects for additional growth. "Telecom Egypt would appear to be a one-trick pony. It's all about the dividend," he said.

"Aside from the dividend, I don't know why you would look at Telecom Egypt. There seems to be almost a complete consensus that there's hardly any growth in the underlying business."

Challenges for the company include "upward pressure on staff costs" and gaining more exposure to the mobile-phone market, Mr Masood added.

Shares in TE, which are listed on the Egyptian Exchange, yesterday closed at 14.11 pounds, a rise of 0.93 per cent.