Du rallied to the highest level in more than four years after the United Arab Emirates phone operator proposed a higher cash dividend and more than doubled fourth-quarter profit.
Shares of Emirates Integrated Telecommunications Co., as the operator is formally known, rose 12 percent to 4.12 dirhams, the highest level since November 2008, at the close in Dubai. The stock was the biggest advancer on the benchmark DFM General Index, which gained 1.7 percent. About 18 million shares were traded, more than 10 times the three-month daily average. Du proposed a 30 fils a share cash dividend, double what it paid last year.
“The most attractive part of the news is the 30 percent cash dividend, which translates into a yield of above 8 percent at last close,” said Talal Touqan, head of research at Al Ramz Securities LLC in Abu Dhabi. “The second booster was their market share.”
Du, which competes in the U.A.E. with Emirates Telecommunications Corp., known as Etisalat, added almost half a million customers in the period, boosting its market share to 48.7 percent, it said. Fourth-quarter net income after royalty to the government soared to 994 million dirhams ($271 million) from 440 million dirhams in the year-earlier period. That beat the 795 million-dirham median estimate of three analysts, according to data compiled by Bloomberg.
Phone companies in the U.A.E. are benefiting from a recovery in Dubai, whose economy probably expanded 5 percent in 2012, the fastest pace since 2007, according to government estimates. Du’s stock rose 21 percent last year as the emirate’s tourism, hotel and restaurant industries improved. That outpaced the 20 percent advance for the benchmark. Du has a 12-month dividend yield of 3.6 percent, compared with 3.3 percent for the DFM General Index.
The U.A.E. government late last year raised royalty fees on Du, prompting speculation earnings may suffer. The company, which is required to pay 17.5 percent of profit and 5 percent of revenue in royalties for 2012, said today it had provisioned for royalty payment at 50 percent. The provisioning boosted quarterly earnings by more than 140 million dirhams, Touqan added.
Payments to the government will rise incrementally in the next four years, with the ratio reaching 30 percent of profit and 12.5 percent of revenue in 2015, the government said in December. The stock trades at a 2013 price-to-earnings ratio of 9.5 times, compared with 12.6 times for the benchmark gauge and 13.3 times for Etisalat.
“The price-to-earnings ratio of the company is within average and the royalty burden will only take its toll beginning 2015, where it effectively becomes higher than the previous one,” Touqan said.
Four analysts recommend investors buy the shares, while five have a hold rating on the stock and one says sell, data compiled by Bloomberg show. Shares of Etisalat slipped 0.2 percent to 9.82 dirhams in Abu Dhabi yesterday, trimming the gain this year to 8.3 percent.
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