NCB Capital says Saudi telecoms is defensive sector; STC top pick

NCB Capital said it expects Saudi Arabian telecoms to be a key defensive sector as it won’t be impacted by the volatility of oil prices and potential spending cuts.

On the other hand, earnings will be supported by strong growth in data and the potential increase in Hajj/Umra visas, analysts at NCB said in a research note on Sunday.

NCB Capital has an “overweight” rating on Saudi Telecom Co (STC) with a price target of SAR 78.8 per share, as the company is supported by strong fundamentals, attractive dividend yield of 6.6 per cent and potential dividend growth.

NCB Capital is “neutral” on Zain Saudi with a target share price of SAR 10.80. Strong data growth is expected to continue to support its revenue and margins, it noted

However, the Zakat payment due of SAR 619 million, lenders negotiations after the covenant breach and the outcome of Mobily arbitration are the stock’s key risks.

Mobily, was rated “under review” by NCB, due to the “unclear outlook as we believe significant cost optimization is required to return to profitability.”

NCB Capital expects Mobily’s restructuring to be a lengthy and costly process. Mobily’s key challenges are expected to be: 1) reducing the inflated Opex and controlling Capex spending, 2) reaching an agreement with lenders while minimizing the financing cost increases and 3) regaining the lost market share.

“We expect Mobily’s net income to be SAR 561 million in 2016E and to improve to SAR 1,049 million in 2017E,” NCB added.