Etisalat, du to ring in growth

Sluggish increase in UAE revenues for Etisalat likely to be offset by better news from company's overseas operations

The telecommunication sector is viewed by many investors as a safe haven during tough economic times.

The region's telecommunications companies are expected to report continued growth in subscribers and revenues in second-quarter results due in the next few weeks. The sector is viewed by many investors as a safe haven during tough economic times, as the underlying demand for mobile and internet services continues to grow and regional operators boost their presence in high-growth emerging markets.

Etisalat's profits are expected to show marginal growth compared with adjusted figures from the previous year. But an exceptional gain of almost Dh1 billion (US$272 million) in the second quarter of last year, related to the sale of a stake in its Saudi network, mean overall net profits will appear down year on year. Simon Simonian, an analyst at Shuaa Capital, expects net profits of Dh2.13bn, marginally above last year's figures adjusted for the sale gains. "We're predicting growth in the low single digits," he said.

Sluggish growth in revenues from UAE subscribers should be offset by a better performance from the company's international subsidiaries in Africa, the Middle East, India and Pakistan, some of which are now profitable. Big investments in a new network in Nigeria will continue to eat away at profits, while the costs of the company's expansion in India have yet to be fully felt on the balance sheet. But Mr Simonian is optimistic over Etisalat's prospects in Iran, where the company was stripped of its telecommunications licence in May.

"I don't think Iran is over," he said. "I think it is possible that we could see Etisalat come back to the negotiating table there." Both Etisalat and its competitor, du, are expected to report single-digit growth in customer numbers despite concerns that the UAE's population is in decline. In part, the failure to reflect any population fall will be because of the method by which the companies measure customers, based on a count of all those who have made or received calls in the past three months, said Irfan Allam, an analyst at Al Mal Capital.

"People who left in recent months or at the end of the school year, they will still be counted," he said. "I think you'll need to wait until third-quarter numbers in October. That's when you will really start seeing the impact." Mr Allam predicts a healthier Dh2.39bn profit for Etisalat, fuelled in part by better currency performance in overseas operations such as Egypt and countries served by its West African network, Atlantique Telecom. Poor performance by local currencies against the US dollar had diluted earnings in previous quarters.

Saudi Telecom, the largest operator in the Middle East, is expected to unveil a small drop in profits, caused largely by the costs of servicing substantial debt acquired last year to fund expansion. Revenues are predicted to rise by between 5 and 10 per cent. @Email:[e-mail]