We are pleased to announce the release of an Investor Report on Sonatel Group (Senegal), written by the Banque Regionale de Marchés (Dakar) in partnership with AfricaNext Investment Research.  This assessment of one of the leading telecom assets in West Africa aims to provide investors and operators with a unique inisght over Sonatel’s performance and valuation perspectives.:

A sustained revenue performance despite slower overall growth. We firmly believe in Sonatel’s unique positioning: its superior network coverage (to almost every single village in Sénégal and Mali), strong distribution network, strong brand name – Orange – and solid management team strengthen the investment case. With an attractive ROE of 33% at YE2009, profitability is still very high with a 56% EBITDA margin (56% at year-end 2008) while growth opportunities remain for the Sonatel. Earnings per share (EPS) rose 20% to top FCFA 16 000 in 2009, allowing for high dividend payment in line with the Company’s traditionally high dividend payout.

Attractively low trading multiples. Despite shedding about 31 % over the past 24 months, we are cautiously optimistic on the Group’s 2010 outlook. At 31 December 2009, Sonatel traded at 4.0x EV/EBITDA 2009A, with a P/E multiple of 7.3x. In terms of relative value and when compared to peer firms in the sector, these multiples suggest that the stock is undervalued. Today Sonatel trades at 4.4x EV/EBITDA, a 27% discount to peer company valuation and a 46% discount to Maroc Télécom on the same basis.

External opportunities are nowhere near faltering. Beyond internal opportunities in the markets in which the Group operates, external opportunities abound. The Group’s total population under coverage is around 37.2 million with an average penetration of 24.7% at YE2009, a level weighted down by Guinee Conakry and Guinee Bissau. Given the low penetration levels in the region, we remain confident in Sonatel’s ability to identify opportunities and capture growth through product innovation and differentiation.

We set our target price at 170 140 Fcfa using DCF valuation, relative valuation and a dividend discount model. We believe Sonatel’s stock price (currently trading at FCFA 135 000) is good value at current levels and when compared to peer companies in the sector and region (Maroc Telecom).

Priced at $500, this 25-page report is available for purchase on our site (www.africanext.com). For more information, please contact info@africanext.com

 South African fixed carrier Telkom announced in a preliminary statement that it expected EBITDA losses at its Nigerian unit, Multi-Links, to be higher than during last fiscal year (ending March 2009). The Company has announced impairments of ZAR 2.1bn (US$260m) on Multi-Links goodwill, and a full impairment of the unit’s net asset value. Last fiscal year, Multi-Links recorded losses of around $185m, off of a negative EBITDA of around $25m. This is clearly of utmost concern.

Telkom has now written off Multi-Links’s entire net asset value, a move that will raise further questions about its presence in Nigeria. We continue to believe that the company has some good assets in that market (though perhaps not that good since their assessed net value is now zero), notably in the wholesale and corporate segments. But competition in Nigeria has been tough. In the carrier’s carrier segment, Multi-Links has to contend with MTN Nigeria and a variety of other rivals, with competition putting downward pressure on bandwidth prices and Multi-Links still lacking nation-wide scale.

The consumer side has arguably been the biggest problem, as CDMA operators engaged in destructive price wars to win customers. Investors will be watching intently to hear which steps Telkom is looking to take in Nigeria, a Jekyll and Hyde market that has as much the capacity to pull up earnings as it does to destroy them. Without adequate strategy, Nigeria will be a money pit, one for which there are no easy solutions. One strategic option may be to get out of the consumer business altogether (or combine it with that of another CDMA player) and bulk up the carrier’s carrier side, or alternatively become more disciplined with subsidies, even at the cost of losing subscriber share.