Last June, Nigerian carrier Globacom revealed it had received a license from the government of Senegal; the announcement created much ado, for the license was awarded outside of traditional channels, with the country’s regulator ostensibly not aware of it. The process was certainly a step back for Senegal’s telecoms regulatory framework. As for Globacom, it’s another step in the company’s relentless effort to build a strong challenger to France Telecom in French-speaking West African markets.   

Over the past few years, Globacom has advanced meticulously, like a spider spinning its web. From its base in Nigeria, the company acquired licenses in Benin, Ghana, Cote-d’Ivoire and now Senegal. While the mobile portion of the licenses typically garners the most attention, it is mere pretense. In all these markets, Globacom would be the fourth mobile operator at best, with challenging profitability prospects. The value is elsewhere, rooted in the upcoming launch of Globacom’s Glo-1 submarine cable.

The licenses provide Globacom with more than landing points; they are a beachhead into West Africa’s burgeoning and underexploited wholesale market, a starting point to offering services in typically neglected landlocked West African countries. With its current coverage, Globacom will be in a position to challenge France Telecom and its primary West African vehicle, Sonatel, by selling bandwidth and corporate services into such markets as Mali, Burkina-Faso and Cote-d’Ivoire, and leveraging the volumes afforded by its Nigerian presence.

Globacom is too often under-estimated, primarily because  the company is information-shy and somewhat nebulous. It’s a mistake to do so; on evidence alone, we find Globacom’s strategic acumen to be as good as any; they know precisely what they are doing.

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