Vivendi After Its Strategic Analysis

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02 Nov 2017

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Tatiana LADA

Maxence LEFRANCOIS

Beatrice GREIF

Evgueni YUSHKULIS

SPRING 2013

–Maroc telecom and its potential buyer.jpg

Table of Contents

Introduction

Vivendi, after its strategic analysis, announced in October 2012 that it is looking to offload stake of its Moroccan telecommunications company, one of the Morocco’s largest telecom operator. Vivendi owns 53% of mentioned company, also 30% of Maroc telecom is controlled by the Moroccan government. The sold stake was valued above €6 billion and attracted big players of telecommunication industry around the world.

Maroc telecom is a major provider of home-line, mobile and internet services in Morocco and it operates in Burkina Faso, Gabon, Mali and Mauritania.

There are 5 competitors that have shown their will to acquire MT after the announcement: MTN Group from South Africa, Qtel from Qatar, KT Corporation from South Korea, France Telecom from France and another bidder is in the field of competition: Etisalat from United Arab Emirates.

The decision of who will be the new owner of Maroc Telecom (MT) depends on several factors and there will be as well the Moroccan government implication to decide on the winner as there are political interests in the game.

Hence, the company which will purchase Vivendi’s stake will obtain critical access to the African telecom market. Today the competition is mainly between 2 companies and we will present them in this report.

Therefore, in the first part of the report we will briefly present Maroc Telecom and its financial results, next we will perform the analysis of rival bidders with the in depth financial analysis of Q Tel (chosen company as the main bidder) and in the last part we will supply the suggestion of which company has the highest financial probability to become the bid winner.

Maroc Telecom

Maroc Telecom is publicly held and traded on the Casablanca Stock Exchange Euronext Paris as IAM. The main industry is telecommunications: home-line, mobile and Internet services and it is the biggest Telecom operator in Morroco.

By the end of 2012, MT’s share capital included 879,095,340 ordinary shares and ownership split is as follows [1] :

Vivendi: 53%

Kingdom of Morocco: 30%

Other: 17%

Management is ensured by Abdeslam Ahizoune (CEO & Chairman) and Laurent Mairot (CFO).

As a holder of 51% of voting rights of each of the following companies: Mauritel, Onatel, Gabon Telecom, Sotelma, Casanet, the financial results of these companies are included in the annual report of Maroc Telecom. In 2012, revenues of the group reached USD 3.6bn and net income of USD 948mn [2] , meaning a decrease by 3.2% of revenue, mainly due to the price decline and reduced termination rates, this loss being compensated by an increased in international revenues, i.e from above mentioned companies. However, the company shows a strong net margin of 26% compared to industry average of 14%. Given the above mentioned performance of the company, and its strong profit margins Maroc Telecom becomes a good acquisition opportunity.

Risks of the company:

Foreign-exchange risk: as MT’s revenue come from international operations under the form of receivables and it pays international suppliers (main used currency is EURO). The company is exposed to fluctuations in exchange rates, i.e. the depreciation or appreciation of one or another currency may affect net earnings. Mainly the Moroccan dirham is exchanged against the US dollar and the Euro.

Equity-risk: at this moment the company does not hold an important portfolio of listed equities.

Interest-risk: major part of debts is based on fixed-rate terms and concluded on the short term basis (less than 1 year) [3] ; appendix 1 contains the debt structure of MT.

To make a brief conclusion on the presentation of Maroc Telecom, we can say that the company is growing and has many opportunities due to its presence in other African markets.

From the latest news: "The suitors for Maroc Telecom's 53% stake, which is worth around USD6bn (EUR4.5bn), are reportedly Abu Dhabi-based Emirates Telecommunications Corp (ABD: ETISALAT), or Etisalat, Qatar Telecom QSC (DOH:QTEL) and South Korean KT Corp (KRX:030200)" [4] .

Therefore we will see the comparison of these suitors and after this we will see the financial analysis of QTel which is particularly interested in this offer.

Presentation of the bidders

In this part we will see the rival bidders to acquire Maroc Telecom and their strategic need with this acquisition. Before the presentation, it is important to mention that Qtel and Etisalat have made "non-binding bids" but if these will not meet Morocco’s requirements, the bid winner will be France Telecom.

MTN Group from South Africa counts 17 509 employees and its operating industry is wireless telecommunications, mobile and accessories (See Appendix n°2).

Strategic need: Decision to be in the competition with other bidders is linked to the desire to enhance the value due to this opportunity but there are some political reasons that could embarrass the deal.

KT Corporation from South Korea counts 31 155 employees and its operating industry is wireless and wireline (Appendix1). The company proceeded to banks’ choice to advise and finance its investment in MT if the bid will be won. Retained banks to be advisers on the potential deal are Citigroup, Credit Suisse and Societe Generale. [5] 

Strategic need: It may be an opportunity for KT Corp to enter for the first time on African market but cultural differences could be a source of problems.

France Telecom from France counts 172 000 employees and its operating industry is personal & home communication service, enterprise communication, broadcasting, wireless.

Strategic need: To enhance the position on African market perhaps France Telecom is already present with 40% of Meditelecom.

Etisalat from United Arab Emirates counts 11 000 employees and its operating industry is fixed lines, mobile telephony, Internet services and digital television. This company has picked a French bank BNP Paribas and Morocco’s Attijariwafa Bank to advice on the deal. [6] 

Strategic need: The desire to diversify a portfolio is the main driver for this acquisition; they have free cash flows from operational activity more than €1.5 billion which makes them a strong competitor.

Q Tel from Qatar (information about this bidder is available in the next part).

Detailed presentation of Qtel (Qatar)

Core business / Company Profile

Q Tel Group is a leading international communications company that operates in the MENA and South East Asia through its subsidiaries and having as a main shareholder the government of Qatar - 68% stake, which gives the company a strong financial backing.

It represents a consolidated customer base of about 83 million as of December, 2011.

It operates a portfolio of brands including Qtel, Indosat, Asiacell, Wataniya, Nawras, Nedjma and Tunisiana.

Qtel Group’s ultimate parent company is Qatar Telecom (Qtel) Q.S.C., whose shares are listed on the Qatar Exchange and the Abu Dhabi Securities Exchange.

The slowing growth of the telecommunication market, price decline and the increasing competition requires Q Tel to carry on an extensive acquisition strategy to ensure revenue growth and leading position within the market.

Management

Chairman of the board: Sheikh Abdullah Bin Mohammed Bin Saud Al Thani, Qtel Group CEO: Nasser Marafih, New Business: Khalid Al- Mansouri, Strategy: Mansoor Al Khater.

Industry

Qtel Group operates within the following activities:

Mobile telephone services

Broadband solutions

Digital futures and fiber technologies

Serving both consumer and business markets.

Hired bank to advice on the potential transaction is J.P Morgan Chase.

SWOT Analysis

Financial analysis of Q Tel

To have a better image about company’s performance a comprehensive financial analysis is performed in three steps: horizontal analysis, vertical analysis and ratios analysis.

Horizontal and vertical analysis

Income statement

A review of Q Tel’s income statement for the last four years (2009-2012) shows an increase of sales by approximately 40% with a higher growth for year 2011 (16.8%) and a lower one (6.14%) for year 2012 as a result of customer growth despite increased competition.

Furthermore, the EBITDA which reflects the company’s operating profitability increased by 31.94% during the stated 4-year period, meaning a 7.55% year-to-year increase in 2012. This line growth of the company was achieved due to a cost optimization and improved operational efficiency through modernizing and more intelligent power management systems. This fact is reflected in a 5.53% increase of operating expenses for 2012 comparative to 16.65% increase for 2011. Selling, general and administrative expenses also show a lower rate of increase (See Appendix n°3).

The company’s net income for the year shows an increase of 45% for 2011 but for 2012 a decrease of 20% comparative to 2011. This could be explained by the 1.4 million QR reported in 2011 as a revaluation gain on the company’s previously held interest in Tunisiana S.A. The 25% additional interest acquired in January 2011 over 50% already held at the time gave Q Tel controlling interest in Tunisiana S.A. For year 2011 the acquired company contributed 699.2 million QR. However the net income attributable to shareholders of the company decreased by almost 10% in year 2011 while for minority interest it increased by 178% due to the payment received in cash for 25% interest acquired. In 2012 the net income attributable to shareholders of the company shows a year-to-year increase of 13% (See Appendix n°3).

Cash flow statement

In the cash-flow statement analysis it is important to understand if the company generates enough cash-flow from its operations in order to cover its financing and investing operations. For the 4-year period analyzed Q Tel recorded a 18.5% growth of net cash from operating activities but a negative year-to-year growth for 2011. This is due to the recorded amount of 1.4 million QR of gain from revaluation of previously held interest in Tunisiana, which is deducted from net income as it is not considered as an operating activity for the company. The decrease of net cash from operating activities for 2011 appears also as a result of a decrease of changes in accounts payables by 434% comparative to 2010.

Net cash from investing activity has negative values during 2009-2012 year, meaning that there are more outflows than inflows. This is due mainly to the acquisitions that the company undertakes as a goal of its growth strategy (2289 million QR outflow from acquisition of subsidiary in 2011). However for 2012 a lower growth of 16% compared to increased outflows of 39% in 2011 was recorded.

Positive cash flow from financing activity was recorded in 2009-2010, but for years 2011-2012 outflows were greater than inflows showing a growth of 182%.Greater outflows for 2012 were generated due to the full repayment of company’s interest bearing loans in august 2012 ($3 billion) from existing cash, as a measure of reducing its leverage, and another $2bn locked in long-term debt through capital markets. As a result at the end of 2012 the company had a 30% less cash available comparative to year-end of 2011, but the company still is being able to generate positive cash flows from its activity (See Appendix n°4).

A review of the common size income statement for 4-year period analyzed shows a cost of goods sold percentage which increased between 2009 and 2010, but decreased in 2011 and 2012 reaching 31.4% and 31.2% respectively. On the other hand gross profit margin shows increase for the last 2 years meaning that COGS percentage decrease is due to increase in revenue from rendering of services and sales of telecommunication equipment rather than cost optimization.( See Appendix n°4)

Apart from its financing and investing activity the company’s performance measured in terms of operating profit margin has weakened during 2009-2012 reaching 23.7% in the last year. This is due to increasing general and administrative expenses and lower growth rate of revenues for 2012.

The assessment of the percentage of profit earned on every sales unit is given by the net profit margin which decreased between 2009-2012 from 16.3% to 14%, but with a single increase in 2011 as a result of the gain reported from company’s investing activity for the year. Therefore, the earnings per share also decreased during these 4 years, mainly for 2012 due to the issued bonus shares and rights issue of shares. [7] 

Balance Sheet

In the analyzed period 2009 - 2012 (See Appendix n°1) total assets increased by 10.94% of which the current assets increased by 34.45% and non-current assets by 5.49%. Current assets recorded the highest growth of 90.17% in 2010/2009, because of its increase in ‘bank balances & cash’ with 14.064 kQAR in 2010 from 2009, a 122.17% growth. Nevertheless the cash balance recorded a decrease of 41.33% in the last two years of analysis due to their acquisitions.

Non-current assets recorded a decrease of 2.70% in 2012 from 2011, because of the decrease in ‘deferred tax asset’ account by 75.96%, due to profitable acquisitions made in 2012: Tunisiana SA (from Tunisian republic), National Mobile Telecommunications (paid in cash, known as Wataniya Telecom from Kuweit), Asiacell Communications PJSC (from Iraq) which is still pending; totalized 3232 MEUR (See Appendix n°3). From fixed assets components the highest increase of 20.27% in 2012-2011 was recorded by ‘available for sale investments’ account, mostly due to the growth of ‘quoted equity investments’ of 88.09%.

Assets represented 279.50% in total revenue in 2012 (See Appendix n°1), a decrease of 93.58 pts from 2010, the year with the highest percentage in revenue. Between 2009 and 2012 the percentage of the ‘non-current assets’ in revenue dropped by 71.27 pts, from 287.09% to 215.82%. Giving the fact that, this ratio has a decreasing trend from 2010, we can say that Qatar Telecom should take into consideration a different amount of ongoing funding.

Considering that non-current assets increased by 7 pts in total assets, from 70% in 2010 to 77% in 2012 (See Appendix n°4), current assets to total assets recorded a decrease from 30% to 23%. The percentage of fixed assets in total assets rose in the last two years due to 4 pts growth of ‘intangible assets & Goodwill’ account. This situation shows that Qatar Telecom has been aggressively acquiring other companies between 2010 and 2012; reason sustained also by 9.30 pts decreased of ‘bank balances & cash’ account to assets, from 25.22% in total assets in 2010 to 15.93% in the last year analyzed. In total revenue ‘bank balances & cash’ account decreased its percentage by 49.59 pts in 2012 compared with 2010 when it recorded 94.10% from revenue.

Among the components of working capital, in the last year of analysis, ‘Accounts receivables & prepayments’ increased their percentage in total assets by 1.52 pts, ‘Accounts payable & accruals’ to total liabilities rose by 1.19 pts and ‘Inventories’ gone up by only 0.08 pts, rising its value in total assets from 0.30% in 2009. The amount of receivables in total sales gone up to 18.08% in 2012, payables fall in revenue until 32.54% in the current year analyzed from 41.46% of sales in 2009 (See Appendix n°5). The total inventories have kept the same level of 1.06% in revenue like in 2009, but recording a reduction in the last three years of analysis, from 1.16% in 2010 to 1.06% in 2012.

From the horizontal analysis point of view, inventories increased by 41.34%, receivables recorded a growth of 45.14% and accounts payables rose by 10.16% in 2012-2009. In 2012 compared with 2011 payables gone down by 2.19% due to the decrease in trade payables more than the increase of accrued expenses, and also due to the fall by 91.97% of the negative fair value of derivatives.

Total Liabilities are having a decreasing trend of 14.64% from 2010 compared with 2012 but, per total, an increase by 3.30% in 2012-2009 (See Appendix n°5). ‘Non-current liabilities’ fall by 6.58% and ‘current liabilities’ gone up until 20480 kQAR in 2012, a growth of 27.59% from 2009. The only component from ‘Non-current liabilities’ account which rose is ‘Employee benefits liability’ with an increase of 23.47% in 2012-2009, due to the increases in ‘Post retirement health care plan’ and ‘Defined benefit pension plan / Labour Law No.13/2003’ accounts.

Among the components of current liabilities, ‘Interest bearing loans and borrowings’ recorded the highest increase, from 1884 kQAR in 2009 to 7308 kQAR in 2012, an enhancement of 287.90%, reached the maximum of 13851 kQAR in 2011 (See Appendix n°5). One of the factors that influenced this increase was an increase in subsidiary loans. ‘Deferred income’ recorded a growth of 63.83% which means that Qatar Telecom had more sales relating to unutilized prepaid cards in 2012 compared with 2009. ‘Income tax payable’ decreased in 2011 by 7.81% from 2010, due to the tax benefit received from Qatar Tax Administration (because the company paid too many taxes in the previous time).

Liabilities decreased in total revenue by 60.96 pts in 2012-2009, mostly because of the reduction of long-term liabilities by 54.90 pts from 164.22% of sales in 2009 to 109.33% in 2012, which means that the telecommunications company generated less revenue from using debt. In 2011 ‘Interest bearing loans and borrowings’ represented 43.60% of revenue. We can say that Qatar Telecom has reliedtr on debt in 2011, given the heavy expansion strategy and also the needs of daily operations. The highest percentage in ‘Total liabilities’ in all analyzed years is represented by non-current liabilities (See Appendix n°6), with a maximum value of 73.65% in 2010 and a minimum of 56.84% in 2011.

The significant change in ‘Shareholders’ Equity’ has occurred in the current year analyzed, when ‘Non-controlling interests’ decreased by 22.58 pts and ‘Attributable to Equity holders of the parent’ account increased by the same percentage points, compared with 2009 (See Appendix n°8). The ‘Non-controlling interests’ balance fall due to the decrease in percentage of the QTEL shares owners.

Total Equity increased in 2012 from 2009 by 25.34% due to increases of ‘Share capital’ by 118.34%, ‘Retained earnings’ by 39.43%, ‘Legal reserve’ account by 91.47% (See Appendix n°7). ‘Fair value reserve’ gone up to 61.07% in 2012 from the previous year, mostly because of the increases in ‘Fair value reserve of available for sale investments’ and ‘Cash flow hedge reserve’ (which was negative in 2011).

Even if ‘Attributable to Equity holders of the parent’ increased its percentage in revenue by 17.78 pts in 2012-2009, the equity of sales gone down from 122.51% in 2009 to 109.42% in 2012, the non-controlling interests falling by 30.85 pts of sales, in the same analyzed period.

‘Retained earnings’ represented 34.37% of ‘Attributable to Equity holders of the parent’ in 2012, a decrease of 9.69 pts, from 44.06% in 2009. The ‘Legal reserve’ account gone up to 44.58% of ‘Attributable to Equity holders of the parent’ in 2012, an increase of 2.97 pts from 2009.

SSE

Consolidated Statement of changes in Equity presents significant transformations between 2012 and 2009 in ‘Fair value reserve’, ‘Share capital’ and ‘Legal reserve’. ‘Share capital’ account rose by 118.34% from 1467 kQAR in 2009 to 3203 kQAR in 2012, in the first two analyzed years keeping the same value. ‘Legal reserve’ kept the 6494 kQAR amount until 2012, when almost doubled, with e percentage of 91.47%, due to transfer of net share premium amount arose out of the rights issue. ‘Fair value reserve’ increased from a negative value of 185 kQAR in 2009 to a positive one of 1084 kQAR in 2012.

‘Translation reserve’ gone down by 20.73% mostly because of decreased ‘Foreign currency translation differences’ account, from foreign operations. ‘Retained earnings’ rose by 39.43%. Per total, ‘Shareholders’ Equity’ enriched 25.34% in 2012-2009, due to increase of ‘Attributable to shareholders of the parent’ by 78.71% and not to ‘Non-controlling interests’ which decreased by 34.91%.

Ratio analysis

Profitability ratios

As some of the profitability ratios such as gross profit margin, operating margin and net profit margin have already been discussed we will limit on ROE, ROA ratios and EBITDA margin review. Stable and relatively high EBITDA margin of about 47% which is higher than the industry average (about 43.71% -most recent Bloomberg data) proves the company’s ability to generate profit from its activity. However the ROE and ROA has a decreasing trend for 2009-2012 with figures lower than the average for the industry: about 10.5% and 3% respectively (26% and 10% for industry mean). The ROIC for 2012 was 7.43% comparative to 12% for industry (Appendix3). This decreasing trend is due to the fact that revenue increases at a reduced rate as the market is facing maturing stage and growth is slowing (See appendix n°4).

Liquidity ratios

The liquidity ratios had a positive evolution between 2009 and 2012 (See Appendix n°2). Cash ratio increased by 2.17%, 2010 being the only year with a cash ratio above 1; which means that Qatar Telecom held a large amount of cash in its balance sheet, showing a possible poor asset utilization. But this was not a big problem, since the telecommunication company made in the next two years different acquisitions.

The balance sheet financial performance of Qatar Telecom liquidity increased by 5.38% and quick ratio by 5.30% in 2012/2009, net working capital having an absolute growth of 901 kQAR. We can say that UAE telecommunications company had enough resources to pay its debts during every year analyzed. Bank balances, the most liquid assets of the business exceed its total debts in the last three years, recorded values above 1. Qatar Telecom managed to keep this strong liquidity position, especially because they increased the loans and borrowing.

Debt ratios

Debt to Equity ratio decreased by 20.80%, from a coefficient of 1.96 in 2010 to 1.55 in 2012 (SeeAppendix n°…); this improvement being due to the reduction of debt and the increment in equity.

Debt to Assets ratio fall by 8.14% from 2010, reaching 0.609 in 2012; which means that more than half of the telecommunications company’s assets are financed through debts.

Net debt to Equity decreased from 2.82 in 2009 to 1.52 in 2012, which means that the company is trying to reduce the proportion of debt and increase the proportion of equity in financing its assets.

Net debt to EBITDA increased by 38.41% due to growth of EBITDA by 32.86% and a reduction of net debt by 3.78% in 2012-2009. This ratio is growing since 2010, reaching a coefficient of 3.82 in 2012; if in the next period net debt to EBITDA will be more than 4-5 there will be a higher probability that QTEL will not be able to handle very good its debt burden.

The company shows an interest coverage ratio about 3.37 which is under the 20 ratio of industry average, meaning that it is generating sufficient revenues to satisfy interest expenses but also the fact that it is still burdened by debt expense.

Efficiency ratios

The decreasing receivables turnover ratio and increasing days receivables turnover (from 27 to 31 days-details in Appendix n°…) means the longer receivables are being held and implies that the company should re-assess its credit policies in order to ensure the timely collection of credit sales that is not earning interest for the firm. Also the days payables turnover is decreasing over the years, but Q Tel is still being able to repay its suppliers quickly as the payables turnover increase from 5.45 to 11,1.

To measure Qatar Telecom’s efficiency in using its assets we computed Asset turnover ratio (See Appendix n°…). Its growth from 0.27 in 2010 to 0.36 in 2012 means that the company lowered its profit margins (indicating pricing strategy) and for every 1QAR in assets QTEL owned during 2012, it sold 0.36 QAR worth of services.

Market test ratios

Of a great interest are the market ratios as these shows the market performance of Q Tel and the attractiveness of the company for investors.

Market value of the company decreased by 21% in 2011 comparative to 2010, but at the same time it shows 16% increase compared to 2009 year. This is mostly due to the decrease of its stock price. Dividend per share as well as earnings per share (EPS) decreased during 4 year period 2009-2011 by 57% and respectively 23%. Price to earnings ratio increases during 2009-2011 and shows a light decrease for 2012 (11.43 compared to 12.86 for industry).

To sum up, the overall financial situation of Q Tel Company is a sound one allowing it to place itself among other bidders for Maroc Telecom stake as part of company’s expansion strategy.

Potential bid winner

In previous part we have discovered main bidders willing to acquire Maroc Telecom. However the aim of the report is to determine which of the four companies: MTN, KT Corporation, Q Tel or France Telecom has the highest financial probability to become the bid winner. For this purpose we will compare the indicators such as [8] : Return-on-Equity , EBITDA Margin, Beta, Debt-to-Equity ratio, Free Cash Flow-to-Equity,

As we can see in the figure below the highest ROE for the year 2012 years among competing bidders is reported by MTN with 23,26% followed by Q Tel having a 11% return on equity which is above the industry average of 9%. A ratio under the industry average is reported by both KT Corporation and France Telecom (8.8% and 3.37%) which means that in terms of profit generating from the shareholders money these two companies are facing some difficulties. Hence, the ROE shows a decreasing trend for Q Tel, KT and FTE and only for MTN it is increasing during the years 2010-2012. A high ROE of 32% is also reported by Maroc Telecom which is intended to be acquired.

In terms of operating profitability one of the highest EBITDA margin in the telecom sector is reported by Q Tel with a 45% margin having the leading position and followed by MTN with a 43% for 2012 year. The other two bidders for the acquisition reported a lower EBITDA margin of 24% for France Telecom and 22% for KT Corporation. However a decrease of 4.22 pp for Q Tel and 2pp for MTN was reported in 2012 compared to 2011, which explains the companies’ desire to acquire Maroc Telecom which shows an EBITDA margin of 56% for 2012 (a 1pp increase compared to previous year).

To assess which of the bidder is more risky comparative to the overall market we will compare the companies’ betas given by Bloomberg data. With an average beta for telecommunication industry of Maroc region of 0.74 the Maroc Telecom shows a 1.2 beta meaning that it has a high exposure to the market risk. A high beta is reported by MTN (1.04), followed by France Telecom with 0.86 beta meaning also that a higher return should be provided by them.

The Q Tel company for which the in depth analysis was performed shows a 0.83 beta which means that it has a lower exposure to systemic risk and it is close to the industry region average of 0.89. However the lowest risk exposure is for KT Corporation presenting only a 0.24 beta compared to 0.63 for industry average, meaning also a lower return which is proved by the ROE ratio reported.

As we can notice from the left chart, the smallest Debt to Equity ratio between 2009 and 2012 is recorded by MTN Group, which has a decrease of 16.67%, followed by KT Corporation, reaching both in 2012 a coefficient below 1. QTEL improved its debt to equity ratio too but their majority of assets are still financed through debt, due to a coefficient above 1. France Telecom being the only one whose debt ratio increased in the last three years.

In the table below we represented Free Cash Flow to Equity indicator from 2009 to 2012, in million Euros, for all competitors who want to acquire 53% of Morocco Telecom.

FCFE (MEUR)

FTE

MTN

KT Corp

QTEL

2009

7399

493

11642

2921

2010

10526

3313

13694

3346

2011

6823

1530

2419

-1765

2012

3700

1856

66

547

After all expenses, reinvestment and debt repayment, we notice that FCFE of KT Corporation and France Telecom are decreasing in the last three years; FCFE of KT Corp falling to only 66 MEUR in 2012. Qatar Telecom had a negative FCFE in 2011 and had to issue new equity in order to raise cash. Free Cash Flow to Equity of MTN Group increased in 2010, by 6.72 times more than the previous year, and also in the last two years analyzed, by 21.30%. This situation means that the MTN shareholders’ could benefit a 21.30% growth of cash paid out as dividends or repurchased stock, without doing any damaging the company’s operations or development opportunities.

To make a better comparison among above mentioned companies a stock price analysis is required to be done in order to see their stock evolution and investors’ perception regarding their return.

Stock performance analysis

The stock performance of Q TEL on Qatar Stock Exchange in the period 2009-2013 evolve higher than the market and the telecom sector only between 2010 and 2011, in other years of analysis being under these two indicators. Per total 01.2009-02.2013 had lost 48,32%, the telecom sector lost 35,13% and the Qatar market index lost 18,56%.

The stock performance of France on Euronext Paris in the period.2009-2013 the stock evolve in the same direction with the telecom french index because FTE represent 99,7% of this index. Per total both indicators had lost in value 65,34%. CAC40 decreased with 20,71%, therefore the FTE stock performance evolve under the French market index from Dec 2008, after the crisis. The FTE stock registered a good performance higher than the market index in 2009. As we can see from the chart, the FTE price stock tends to evolve in the opposite way with CAC40 which has an increasing trend.

The stock performance of MTN Group (MTN) on Johannesburg Stock Exchange evolve in the same direction with the market and with the telecom index from African stock exchange, being slightly above the market and the sector in all years of analysis. The MTN Group stock had a performance of 40.61%, JALSH African market index increased by 32.53%.

The stock performance of KT Corporation (KS) on South Korea stock exchange evolved above KOSPI only in 2009 and from September 2011 is evolving under the telecom south Korean market. Per total KOSPI registered an increase of 19,07%, while the KT Corporation stock performance decreased by 24,07%, followed by the telecom sector that had lost 12,95%.

According to the NPV analysis performed for bidders (See appendix n...) we can see that during a period of 6 years (2013-2018) only two companies show positive value for NPV for the Maroc Telecom project : France Telecom and MTN Group, with a higher value for FTE. Negative NPV value results for Q Tel and KT Corporation, meaning that the acquisition of morrocan company would make more sense for the first two companies.

Recommendations to the buyer

Given the high competition for acquiring the stake of Maroc Telecom the takeover price is expected to boost further, especially given the fact that a mandatory offer should be made to minority shareholders by the buyer.

The buyer of the Maroc Telecom financial results has to pay also attention to the depreciation of MT’s property, plant and equipment which represent 70,5% of all noncurrent assets of MAD 36,122 million. In the financial report all depreciation periods are available.

Although the comparative financial analysis performed within the report shows that a higher financial probability for winning the bid is for MTN, which shows better performance in terms of return and payment ability, Q Tel Company should be also consider as a potential bidder with high probability since it already proceeded to its due diligence phase. However Q Tel stated clear that it does not intend to be drawn into a hard competition challenge for this acquisition leaving a possibility of walking away, since there is another significant player on the market showing interest for the stake: Etisalat with even better financial performance than MTN.

To finance their capital expenditures initiatives, Qatar Telecom relied on debt financing in the last three years analyzed. We conclude that QTEL show a sign of prosperity because its balance sheet reveals the amount of ‘non-current liabilities’ has been decreasing by 25.50% between 2010 and 2012. Even if their long-term debt shrank, the situation is not improving because the ‘bank balances & cash’ account fall by 41.33%.

All the corporations are applying IFRS accounting standards (until 2011 KT Corp used K-GAAP), using weighted average cost method for inventories, straight-line amortization method, Goodwill being measured at fair value in accordance with IFRS 3......

Appendices

Appendix 1: Debt structure of Maroc Telecom

Appendix 2: Revenue by business segments for MTN, Q TEL and KT

MTN Q TEL KT

*Bloomberg data

Appendix 3

Based on data from annual reports available on: http://www.qtel.qa/en/INVESTO_RELATIONS

Appendix 4

Based on data from annual reports available on: http://www.qtel.qa

Appendix 5 in absolute value, Vertical & Horizontal analysis for Assets, Q Tel, 2009 – 2012

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Appendix 6: Liquidity ratios for Qatar Telecom, 2009 - 2012

Appendix 7: Acquisitions list made by QTEL between 2007 – 2012

deal list_M&A.gif

Appendix 8: % of Non-current & Current assets in Total Assets, QTEL, 2009-2012

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Appendix 9: Liabilities in absolute value, Vertical & Horizontal analysis for Liabil., Q Tel, 2009 – 2012

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Appendix 10: % of Non-current & Current Liabilities in Total Liabilities, QTEL, 2009-2012

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Appendix 11: Equity in absolute value, Vertical & Horizontal analysis for Equity, Q Tel, 2009 - 2012

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Appendix 12: % of Attributable to Equity holders of the parent & Non-controlling interests in Total Shareholders’ Equity, Qatar Telecom, 2009 – 2012

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Appendix n°9: Debt ratios for Qatar Telecom, 2009-2012

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Appendix 12

Efficiency ratios for Q Tel

2009

2010

2011

2012

Receivables turnover

13,15

12,46

12,88

11,49

Receivables turnover days

27,38

28,89

27,95

31,32

Payables turnover

5,45

7,10

9,34

11,11

Payables turnover days

66,02

50,69

38,54

32,41

Appendix 6

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Capital Markets Day Report 2013 available on: http://www.qtel.qa/en/INVESTO_RELATIONS

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Appendix n°11: Stock performance of Maroc Telecom (IAM) vs. Index & Sector, 01.2009 - 02.2013

stock price_IAM vs Index&Sector.jpg

Appendix n°12: Stock performance of Qatar Telecom (QTEL) vs. Index & Sector, 01.2009 - 02.2013

stock price_QTEL vs Index&Sector.jpg

Appendix n°13: Stock performance of France Telecom (FTE) vs. Index & Sector, 03.2009 - 02.2013

stock price_FTE vs Index&Sector.jpg

Appendix n°14: Stock performance of MTN Group vs. Index & Sector, 03.2009 - 02.2013

stock price_MTN vs Index&Sector.jpg

Appendix n°15: Stock performance of KT Corporation vs. Index & Sector, 03.2009 - 02.2013

stock price_KT Corp vs Index&Sector.jpg

Appendix n°16: Stock performance of Emirates Tel Corp (Etisalat) vs. Index & Sector, 03.2009 - 02.2013

stock price_ETISALAT vs Index&Sector.jpg



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