The smart money is on telecoms, says Morgan Stanley

A report saying regional telecommunications operators are a good bet for investors looking for a defensive investment.

Nervous investors searching for a financial safe-haven should consider the regional telecommunications sector, according to the investment bank Morgan Stanley. The universal appeal of the mobile phone, rising incomes across the Middle East and Africa, and solid management teams all make companies in the sector a safe bet in times of extreme economic caution, the bank said in a report released today.

"We feel the drivers for upside to our forecasts ? lower cost of ownership [of mobile phones], rising disposable income and the basic human need (and want) to communicate ? remain intact," the report said. Companies like Egypt's Orascom Telecom, Zain of Kuwait and South Africa's MTN are all undervalued and worthy of investment, according to analysis by the bank. All these companies have strong future outlooks driven by expansion into growth markets, while their stock prices are currently depressed by panicked emerging-market selling.

With the world economy entering a perilous phase of frozen capital markets, Morgan Stanley raised the assumed cost of financing for companies in the sector, while downgrading both earnings and share price targets. But the companies still come in as good value after factoring in such bearish assumptions, with Orascom, MTN and Zain all still undervalued by 10-35 per cent according to Morgan Stanley's conservative estimates.

Other analysts are more optimistic. According to data compiled by Bloomberg, Orascom is currently trading at 146 per cent below the consensus estimate of analysts, Zain is 29 per cent below and MTN is undervalued by 46 per cent. [e-mail]