Yesterday Zain KK reported worse than expected Q3 earnings of KD41 million, a 53% YoY decline, missing Bloomberg consensus estimates of KD100 million by 56%! The main decline in earnings was due to unfavorable FX moves, lower investment income, higher financing costs, and high start up costs in Saudi and Ghana. Net profit adjusted for an extraordinary loss of KD36m related to foreign currency fluctuation is KD77 million, down 12% YoY.

Given an EBITDA of KD245 million, we estimate the year-end EBITDA to be KD980 million.

As seen in the chart above, Zain is trading higher than relative peers. In fact, Zain is the most expensive telecom stock. With a mean EV/EBITDA multiple of 5.6x, I’ll be generous with my assumptions and take a multiple of 6x. Using H1 ‘09 debt and cash we get KD2,164 million and KD 362 million respectively and adding the adjustments of the expected ‘09 EBITDA and fair multiple of 6x (I won’t bore with my calculations), we should get a fair price of KD0.950 which means there is still about 7% downside.

The 3 charts below indicate the price as of today, the fluctuation in earnings growth, and earnings over the past 15 quarters.

Tags: Telecoms, Zain, Zain 3rd Quarter Results Disappoint, Zain 9m results, Zain Q3, Zain results

This entry was posted on Monday, November 16th, 2009 at 8:10 pm and is filed under Kuwait, World. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.