Maroc Telecom released its Q1 20 results with reported net income up 0.9% to MAD1.6bn. The income statement does not factor in the effect of the ANRT (National Telecommunications Regulatory Agency) fine of MAD3.3bn paid in the quarter and reflected in cash movements. At first glance, operational performance was better than expected, but we note that the company's Morocco operating metrics have weakened, albeit offset by strong growth in international subsidiaries. We also note that Q1 20 includes the consolidation of Tigo Chad acquired in June 2019.
We retain our TP of MAD150.91, but upgrade our recommendation to Buy from Hold due to recent price movements (a 15% decline in share price since the first Coronavirus case was announced in Morocco on 2 March 2020).
Revenue performance was stronger than our annualised forecast of 0.4% yoy growth. Revenue was up 4% yoy to MAD 9.3bn, driven by a 7% yoy growth in international revenue to MAD4.2bn. The company attributed this to strong growth in mobile data and mobile money services. Growth in the company's Morocco operations was subdued at 0.3% yoy with a registered weakness in fixed line revenue, down 2% yoy, offsetting mobile revenue growth of 2%. Mobile revenue in Morocco benefited from a 20.3% yoy growth in mobile data. Incoming revenue, however, decreased by 7.3% yoy, partly due to a decrease in international traffic.
EBITDA performance was stronger than the annualised decline of 0.2% that we expected. Reported EBITDA grew 3% yoy to MAD 4.7bn with a 2% yoy drop in EBITDA in Morocco that was offset by a 12.4% yoy increase in EBITDA for the international subsidiaries. The improvement in international subsidiaries was attributable to improved gross margins and controlled operating expenses. Group EBITDA margin was down 50bps to 51.5%. Morocco EBITDA margin dropped 1ppt to 55% with international subsidiaries improving by 2ppts to 43%.
Capex was down 76% yoy (down 39% yoy excluding licence and frequency payments) to MAD527mn, with Morocco capex down 20% and international subsidiaries capex down 87% (down 52% excluding licence and frequency payments).
Reported cash flow from operations (CFFO) changed from a positive cash position of MAD1.1bn in Q1 19 to a negative position of MAD407mn due to the payment of the ANRT fine of MAD3.3bn in Morocco.
We await further details from management on factors driving the strong international subsidiaries' performance, as well as the outlook on capex and revenue performance following the global Covid-19 crisis.