On Friday, Morgan Stanley initiated coverage on Emirates Telecommunications Group (EAND:AD) stock, commonly known as e&, with an Equalweight rating and a price target of AED20.00. The firm highlighted the company’s solid core business in the UAE, which accounts for 60% of its equity and boasts impressive operating free cash flow (opFCF) margins of 43%.
The analyst noted e&’s strategic shift that aims to introduce accelerated growth through its new business components, e& Enterprise, e& Life, and PPF. This strategy is expected to transform the company’s revenue growth from a compound annual growth rate (CAGR) of approximately 1% during 2020-2023 to around 4% for the period 2024-2027. Similarly, EBITDA growth is anticipated to improve from a slightly negative CAGR in 2020-2023 to approximately 3% CAGR between 2024 and 2027.
Morgan Stanley’s outlook for e& includes not only better revenue and EBITDA growth but also an increase in dividends and enhanced balance sheet efficiency. The telecommunications group is poised to offer an attractive mix of growth in both top and bottom lines, with a compound annual growth rate of about 4% and 6%, respectively, over the period from 2024 to 2027. Additionally, the company is expected to provide a growing income with a 4.7% yield and a 3.5% per annum increase, based on a 65% earnings payout.
The coverage places Morgan Stanley’s perspective broadly in line with the consensus, with the price target suggesting a 14% upside potential. This is slightly below the sector’s average upside potential of 20%, leading the firm to maintain a neutral stance. The valuation of e& is at 13.6 times its projected 2025 earnings, compared to its regional peer STC at 14.7 times and local competitor Du at 14.5 times. This valuation represents a 30% premium over the broader UAE market, which is lower than the 10-year average premium of 45%.
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