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Wed 16 Mar 2011 11:09 AM

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Shuaa Capital starts UAE telco du with buy

Investment bank sees solid revenue growth and margin expansion for du in next several years

Shuaa Capital starts UAE telco du with buy
STOCK WATCH: Shuaa Capital started UAEs No 2 telecoms provider du with a buy rating (Getty Images)

Shuaa Capital started UAE's No 2

telecoms provider du with a "buy" rating and said it

sees solid revenue growth and margin expansion for the company

in next several years.

"Du is a top pick in our Middle East and North Africa (MENA)

telecom universe," Shuaa analyst Simon Simonian, who set a fair

value of AED4.03 on the stock, wrote in a note to clients.

Du, which is the second largest provider of telecoms

services in the UAE after Emirates Telecommunications Corp

(Etisalat), has plans to expand its fixed-line

operations across the country, putting more pressure on its


"The UAE telecom sector should remain a duopoly for the

foreseeable future, with the regulator recently reiterating no

plans for a third operator," Simonian wrote.

Du - partly owned by the ruler of Dubai's investment company

Dubai Holding and Abu Dhabi-owned investment vehicle Mubadala -

also has plans to boost its share in a market that boasts one of

the world's highest mobile penetration.

Simonian estimates du's share of UAE active mobile

subscribers reached 38 percent in 2010.

Dubai-based du broke Etisalat's monopoly in 2007 and has

been rapidly gaining ground on its larger rival, prompting

Etisalat to seek acquisitions to expand.

Earlier this month, du reported a fourth-quarter profit that

doubled, before a royalty of AED431m, on a 34

percent rise in revenue.

Shuaa's Simonian said mobile data contribution more than

doubled year over year in the fourth quarter and he sees further

average revenue per user (ARPU) growth as du continues to

attract higher spending post-paid, smartphone and data


"Implementation of mobile number portability as of the

second quarter could present an opportunity to solicit

Etisalat's high value customers," Simonian added.

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