Bahrain Telecommunications Co. -Equity Report -25-01-2012

12-Month Fair Value: BHD 0.560
Recommendation: Buy – Risk Level: 4
Last Close (23 January, 2012): BHD 0.394

Batelco’s 4Q2011 revenues slightly below forecast; however EBITDA is in line. Revenues declined by 3% year-over-year (YoY) to BHD 82 million (5% below our forecast and 3% below consensus estimates). EBITDA declined by 7% YoY to BHD 33 million (2% above our forecast and 6% above consensus estimates), representing an EBITDA margin of 40%, down from 42% in 4Q2010. Net profit grew by 13% YoY to BHD 24 million.

Valuation maintained, dividend yield should motivate trading interest. Given that the operator’s performance was broadly in line with our expectations we maintain our fair value for the stock at BHD 0.560 per share (42% upside) and “Buy” recommendation. We believe the dividend yield should generate the needed trading interest in the stock given that the stock price has remained relatively flat since August 2011. The stock trades at an EV/2012EBITDA of 3.7x (versus our covered universe average of 4.7x) and a FY2012 P/E of 6.7x (versus our covered universe average of 11.9x).