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Sonatel H1 19 – disappointment in opex and finance costs

    Tracy Kivunyu
    Tracy Kivunyu

    Equity Research Analyst, Telecoms

    Tellimer Research
    1 August 2019
    Published by

    Sonatel has released its H1 19 results which were impacted by higher than expected expenses and finance costs, along with an increase in tax rates in the period.

    EPS was down 10% yoy to XOF 799.63, which when annualised is 17% below consensus estimates.

    Mobile subscriptions grew 17% yoy to 32mn, driven by a recovery in Mali subscriptions from a 33% yoy decline in H1 18 to a 32% increase yoy in 1H19. Sonatel had indicated it expects a return to growth in Mali subs in 2019 following a clean up of its subscriber base.

    Revenue grew 7% yoy to XOF542bn driven by mobile data and mobile money. Mobile data grew 25% yoy to XOF112bn, driven by a 14% yoy increase in subscriptions and a 9% yoy increase in ARPU. Orange Money grew 43% yoy to XOF41bn driven by a 22% increase yoy in subscriptions and a 36% yoy increase in transaction value. We note a slowdown of the international revenue decline rate from 22% as at FY18 to 6% yoy in 1H19.

    EBITDA margin declined 2.5ppts from 46% in 1H18 to 43.5% in 1H19. There was an 18% yoy increase in taxes and dues paid in the period to XOF37bn and a 38% yoy increase in other expenses to XOF14bn. EBIT margin also declined 2.4ppts to 29% yoy.

    Finance costs increased by 50% yoy to XOF18bn with a 38% yoy increase in current liabilities, implying higher rates of short-term debt.

    Sonatel also reported an increase in tax rate from 34% in H1 18 to 37% in H1 19 despite a 6% yoy decrease in PBT.

    We also note that capex intensity increased from 13% in H1 18 to 18% in H1 19, which was driven by core network investments in Mali, Guinea and Senegal.

    We have a HOLD recommendation on Sonatel, although after lacklustre share price performance in the past three months our target price of XOF21,336 now implies an ETR of 26%. We will revisit our estimates in light of the results.