New Partnerships And 5G Initiatives Will Expand Digital Services In High-Growth Markets

Key Takeaways

• Strategic partnerships and increasing data center capacity are set to accelerate growth in digital infrastructure and future revenue.
  
• Investment in 5G and fintech expansion in high-growth markets could drive top-line growth and improve earnings through diversification and operational efficiency.
  
• Competitive pressure, strategic investments, and geopolitical risks threaten margins, cash flow, and market share in key regions for Ooredoo Q.P.S.C.

Catalysts

Provides telecommunications services in Qatar, Asia, rest of the Middle East, and North Africa region.

• Strategic partnerships, such as those with Alcatel Submarine Networks and Iron Mountain, are expected to accelerate growth in the sea cable and data center businesses, potentially boosting future revenue.
  
• Expansion of data center capacity aimed at increasing from 40 megawatts to 120 megawatts is likely to enhance revenue and profit margins as Ooredoo becomes a leader in digital infrastructure.
  
• The launch of new 5G initiatives, particularly in Oman, and further investment in high-growth markets like Iraq and Algeria are expected to drive additional top-line growth, impacting revenue positively.
  
• Continued focus on fintech expansion and new product offerings, such as the Mobile Money app walletii and obtaining PSP licenses in various markets, could lead to increased earnings through diversification and high-margin financial products.
  
• Efficient cost management and strategic focus on operational excellence are likely to sustain or improve EBITDA margins by optimizing existing processes and integrating AI, which could lead to higher earnings.

Ooredoo Q.P.S.C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ooredoo Q.P.S.C's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.4% today to 16.2% in 3 years time.
• Analysts expect earnings to reach QAR 4.1 billion (and earnings per share of QAR 1.29) by about March 2028, up from QAR 3.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from 11.0x today. This future PE is greater than the current PE for the QA Telecom industry at 11.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.85%, as per the Simply Wall St company report.

Ooredoo Q.P.S.C Future Earnings Per Share Growth

Risks

• The highly competitive mobile market in Oman led to decreased revenue and EBITDA, impacting overall profitability. Continued competition may further pressure margins and affect revenue growth.
  
• Pressure on gross margins in Qatar's operations signals potential challenges in maintaining profitability, which could impact net margins if not addressed.
  
• Strategic investments in data centers and subsea cables will increase CapEx significantly, which could pressure free cash flow and return on invested capital in the short to medium term.
  
• One-off bad debt provisions in Kuwait have already impacted EBITDA, indicating potential risks related to credit control and future earnings in this market.
  
• The geopolitical situation and regulatory environment, such as penalties in Iraq and market entry of new competitors like Vodafone, could negatively affect market share and EBITDA margins, especially in Iraq.

Valuation

• The analysts have a consensus price target of QAR14.34 for Ooredoo Q.P.S.C based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR25.1 billion, earnings will come to QAR4.1 billion, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 18.9%.
• Given the current share price of QAR11.79, the analyst price target of QAR14.34 is 17.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.