HSBC Holdings downgrades Saudi Telecom shares

Saudi telco's shares downgraded to neutral as expansion plans consume capital
HSBC Holdings downgrades Saudi Telecom shares
By Bloomberg
Mon 01 Aug 2011 06:49 PM

Saudi Telecom Company, Saudi
Arabia’s largest phone company by market value, was downgraded to
“neutral” at HSBC Holdings on Monday as expansion plans consume capital and
competition may force the company to cut prices.

HSBC reduced
Saudi Telecom’s shares from “overweight” for the first time since
initiating coverage in 2007 as low prospects for earnings growth make
the stock a “value trap,” Kunal Bajaj, a Dubai-based analyst at HSBC,
wrote in a report. The price estimate was lowered to 40
riyals from 48 riyals.

“In the
short- to medium-term, we believe the company’s fundamentals will
deteriorate as a result of capital required for its international
expansion,” Bajaj said in the report. “We expect little earnings growth
over the next 5 years.”

Saudi
Telecom plans to expand in Southeast Asia and the Middle East through
acquisitions and new licenses, the company said in May after it raised
its stake in Indonesia’s NTS, known as Axis.

Following price reductions
by competitors Zain Saudi Arabia, a unit of Mobile Telecommunications
Company of Kuwait, and Etihad Etisalat, known as Mobily, Saudi Telecom
may do the same, with the cuts reflected from the third quarter onward,
Bajaj wrote.

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