EXECUTIVE SUMMARY
Following Maroc Telecom FY 2022 annual achievement and based on our discussions with the Management on April 11th 2023, we have updated our analysis as well as our stock's valuation.
Beyond the inflationary pressures that weigh on the sector's growth, we believe that the regulatory context remains the main risk facing Maroc Telecom. In fact, we note more frequent fine decisions, more tax pressures and strong aggressiveness on prices by the challengers.
From a fundamental point of view, we remain convinced that the stock's sharp correction in the Stock market is disproportionate regarding to this new regulatory context. Based on our own valuation assumptions, the stock's target price stands at MAD 104, offering an upside potential of 37%(1) on the stock market. In the end, we maintain our BUY recommendation.
The main conclusions of our analysis concern four points:
- The intensification of competition in Morocco is supported by an increasingly restrictive regulatory framework toward Maroc Telecom, namely: (1) limited leeway in terms of Offers & Promotions for unlimited Data Mobile, ADSL & FTTH equipment, (2) more restrictive framework for specific B2B Offers and (3) sustainability of price asymmetry in
favour of competitors;
- The incumbent operator should continue to deploy additional efforts to defend its market share in a more challenging competitive and regulatory context. The CAPEX/Revenue ratio would be at high levels of more than 18.0% over the 2023-2026 period. This scenario would put pressure on the company's future distribution levels;
- Changes in the regulatory framework seem to have a visible impact on Maroc Telecom's risk profile. This new situation is reflected in the stock's beta level which moved from a historical level 0.85 historically to 1.04 in 2023. Under these conditions, Maroc Telecom is penalized more by the rise in its discount rate rather than by the deterioration of its future recurrent cash flows. The stock's WACC stands at 8.7% in May 2023 compared to 6.3% in
2022. This change has a greater impact on mature companies, such as Maroc Telecom;
- After an sharp drop of -42%(1) over the past 12 months, Maroc Telecom stock offers attractive entry points for investors. This is, on the one hand, an average P/E of 11.6x against a target level of 16.0x for MASI Index and, on the other hand, a dividend yield of 6.0 % over the period 2023-2025.
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