To DU or not to DU ?

[sam111sam]

I've been wondering about the DU limit up everyday

I was wondering: Profitability can not be the reason...while DU is hardly making 8 fils of profit in 2009 and hope to make 15 fils in 2010...very very poor profitability (IPO price was Dhs 3 in March 2006 ?)

For the same current share price Emirates bank will make 80 Fils of profit in 2009, and hopefully more than 100 fils in 2010

May be DU will catch up with emirates bank in 2020

So why is DU share price going up and up ?

The news about Vodaphone alliance (although I'm not sure how will this improve the profit outlook)

I'm a bit disappointed that none of us pick up that rummer early enough...We could have made some good money on DU

This is a good example of the value of TA, the technical chart showed clearly a breakout in DU...I was just afraid to touch it, given the grim profit forecast...BIG MISTAKE ...should trust TA

[technical]

well, thats the beauty of TA. im a hardcore fanatic, short term that is. The thing with TA is that it does not necessarily follow what fundamentals say... Short term when you see a breakaway, the possibility to earn 2 to 5% is good. Or just when you see a support line, you just buy on it even though the fundamentals say negative stuffs. Its that psychological support that i believe most basic technical analysts follow that resists the price to break and eventually hold and rebound. Its more like saying, if you cant beat them, join them. But, and as most of the experts i read about in this forum say, a trading plan is a must-- meaning, using a stop loss. knowing decisively and accept you're analysis is wrong (the market is always right, and you're chance is to follow whats right) and having the discipline to cut your losses short. At the end of the day, when you follow the basic supports and resistances-- as they are patterns, the multiple times that you get it right as compared to the number of times you get it wrong / or that they break away from the pattern are higher.

i suppose you were looking at the 3.95/4.0 resistance level (sometime end Sep/beginning Oct 08 when that level was breached) that DU broke this morning. I have gotten in when it made a retracement after the highs of 4.13 (was able to get in near the 4.0 level). If the market decides to go against my prediction, say it goes to 3.90, then i have to accept that i have to cut my loss and that the resistance i thought was not respected. but since it finally breached, i am bullish toward the 4.25-4.30 level. 4-5% profit is what i look for as a short term technical trader, any profits more than that is a bonus.

Looking at FGB, you will also notice that there were multiple attempts at 19.25-35 level, since September and the recent days. It finally breached it this morning and the price just shot up to 19.75 highs. Unfortunately, my entry price of 19.20 was not hit, when the spread was crazy at 19.20-19.50. too bad, but then again there was a retracement at DU that i got

[ixtira]

DU is sitting with a price to book of 6.3 and a PE ratio of 85

Either DU is going to grow its earnings per share by 600% or the share price will have to come down.

Do you think DU can grow its earings per share enough to justify its current price? … or is this a short term game only?

[sam111sam]

[sharewadi]

Du (DU) only started making a profit a year ago, and quarterly growth was 100%-200% for a couple of quarters but collapsed for the first two quarters of 2009.

If we use Etisalat (ETISALAT) as a benchmark guide to potential earnings for Du in this way:

Etisalat Equity about AED 40 billion
Etisalat Return on Equity (ROE) about 20%-30%
Du Equity about AED 2.5 billion

Use Etisalat ROE as a predictor of potential profit for Du: 20%-30% on AED 2.5 billion is about AED 500-750 million, which means EPS indicator = 0.125-0.1875.

Looks like Du will be on for AED 150-250m for 2009, so could be another 3 or 4 years before we see them up to similar ROE figures as Etisalat.

Etisalat trades at a PE of about 10, so if we use the same PE for Du, we get a share price indication of about 1.25-1.88 using potential earnings. Du closed at 4.09 today. And that's if Du is run as well as Etisalat. Considering Du can't even sort out a simple DNS caching problem after 6 months, I'll wait for Etisalat foreign ownership to open up thanks.

A Du share price of 4 dirhams might be justified in 10 years time assuming Equity triples and Earnings rise to AED 2 billion by then. That assumes profit growth of about 25% per year from here. Is that realistic?

I just remembered, there's one factor I've left out. Etisalat pays royalties, I think 50%. As far as I know, Du doesn't. However, if a company can still do ROE of 20%-30% after paying royalties, they're doing pretty well.
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[Prop]

Why wouldn't du make higher profits?
Most of the new developments are exclusively serviced by du. For example, in July Emaar delivered to investors The Burj Views in Downtown Burj Dubai - 763 apartments all together - translates into new 763 landline, Internet and TV accounts.
Most of the Emaar developments are serviced by du and I presume that the spread of business between Etisalat and du is engineered on other level. If du services all Emaar's developments, all of the other 3 companies from the merger projects, Emaar hospitality (4 hotels), The Dubai Mall and Burj Dubai etc., together with new developments in Abu Dhabi, it will generate much higher than expected revenues.

From the defensive stocks du and Tabreed have highest potential, in my humble opinion.

[sharewadi]

Yes, true enough. I didn't have information about developments where Du operates, or the time or interest to try and look them up, but I expect a more accurate figure for revenue and profit could be determined by further investigation along the lines you've suggested. Maybe when Du 2009 Q3 financial results are released there will be some information which could help with that.

My analysis wasn't based on any tried and tested financial principles, just what I thought might be an easy way to get a feel for where Du could be headed.
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[Prop]

If 763 new du accounts produce on the average AED 500 monthly, this equals monthly to AED 4 mil. In Dubai alone, according the statistic for 2009, some 28000 - 32000 residential units are expected to be delivered (some already delivered). Most are developed by Government backed developers - e.g. Dubai Property delivers aprox. 3500 residential units in Mirdif, another few thousands in Business Bay etc. The commercial accounts are completely separate.
Also I am wondering, who will service Al Reem island and Al Raha areas in Abu Dhabi.
My understanding about Tabreed's revenues is very similar.

[sam111sam]

I recall some comment of their CEO of DU forecasting 8 Fils of profit in 2009 as being ahead of its own plan

The fact that DU does NOT own its own land network put a limit on their own offerings, specially on Internet...As DU needs to pay Etisalat for the use of that network that Etisalat build at very low cost long time ago

DU is left with Mobile calls and international calls where the competition is bringing the price down and margins

Almost all 4-5 analyst reports give the same figures and forecast about DU...
very low profit expected till 2012

Tabreed is a similar story ...even worse. At least DU will make good profit (10% of IPO price) 5 yrs after launch.
Tabreed is not able to make that 10% profit 13 years after launch...

I hope their new contracts with Dubai Metro is more profitable than their existing ones

Why would anyone take the risk in investing money is a company that would generate less than 10% (of IPO) profit

[Prop]

Here is part of the press release about the Interconnection Agreement between du and Etisalat:

Press Release 27 December 2006:

Major Milestone For du’s Launch of Services du, the UAE’s new national telecom operator, today signed the Interconnection Agreement with etisalat. ... By agreeing on the terms of the interconnection agreement, the two operators have now ensured that their networks can exchange calls and they can obtain other services from each other. It took almost a year for the two parties to finalise the agreement which has multiple dimensions – technical, operational, commercial, legal and regulatory – that are complex and often take several years to resolve in other jurisdictions. Commenting on the agreement, Osman Sultan, Chief Executive Officer of du, said: “The interconnection agreement marks an important milestone for the UAE’s telecom industry. It is a necessary pre-condition for the launch of our mobile services. In addition, one of the most significant outcomes of this agreement is that it will allow du to offer fixed line calling services across the UAE in a phased manner during 2007. This agreement, which is based on the sound regulatory principles that have been adopted in the UAE, will go a long way in ensuring a healthy and dynamically competitive environment for end-users, considering the fact that du is entering a telecom market that is one of the most penetrated in the world.” Sultan added: “du’s Number Booking Campaign was the first initiative in our run-up to the launch, followed by the allocation of numbers. With the conclusion of today’s agreement, we come closer to delivering upon our promises to the customers.” ....

However, du offers broader variety of services than Etisalat and charges good taxes. Such is the number selection packages - bronze, silver gold etc.

Also both - Etisalat and du are subject to 40 % government royalty on annual profits.

Following my previous comment about the telecom services in the newly developed areas, I would like to add that is very much likely in 2010 the income from retail only to be much higher.

[sam111sam]

2010 Income will be higher ?

yes, It should almost double from 8 Fils to 15 Fils

But does this justify the share price?
Does this compare with any other Telco in the region ?

I'm puzzled with DFM share prices...Anyway, DU is a much cheaper compared with DFM Co

The main profit comes from international calls... Which is under pressure with people use Skype and other VOIP...also communicating with email and chat

Don't take me wrong... I love DU service and pricing...
I make sure that I use the DU line for all international calls..My Etisalat personal bill dropped from Dhs 500 to Dhs 50

[ixtira]

Comparison with other Telecom Stocks:-

Etisalat
Price to Earnings Ratio = 10.36
Price to Book Ratio = 2.23

Sudatel
Price to Earnings Ratio = 47.47
Price to Book Ratio = 2.29

DU
Price to Earnings Ratio = 85
Price to Book Ratio = 6.3

QTEL
Price to Earnings Ratio = 6.18
Price to Book Ration = 1.57

DU looks very overpriced!

[Prop]

Bellow is a quote of similar discussion from the beginning of August.
At the time the share price was about AED 2.80. Now is aprox. AED 4.
According Mubasher charts the share price once reached around 7.90 (http://english.mubasher.info/DFM/companies/ComGraph.aspx?ComID=2451).
There is a way to go.
I expect in the coming 2 years the share price to reach the same or higher level.

[sam111sam]

[Prop]

Sam,
it seems you have a dilemma about du...otherwise why would you start the topic?

Hate or love, overpriced or not, fundamentals or advertising - the mathematics is simple. If we are going to enter into a cycle of inflation or hyperinflation, the share price will go up, as the prices of all the rest.

Apart from that, outsourcing services from Etisalat is actually smart move for du, as it may be more costly to build own network nowadays. If is not more costly, it is at least time consuming.
Also outsourcing the services in non-competitive environment is actually Win-Win situation. What I mean as non-competitive environment is that in the area allocated for du services, Etisalat is not operating at all - so the customer has no choice, but pay du.

[technical]

Guys, is there any suspension or announcement related with DU as it doesnt have a single trade for the day.

(After being actively traded the last few days)

[sharewadi]

[technical]

thanks sharewadi.

[fayesloan]

Clearly DU is an overvalued stock. I think ixtira shows it best. And if sam111sam or others are hinting at difficulty in DU justifying its current market capitalisation then they are also correct. This is more true when there is currently no chance DU can expand abroad. Thousands of units landing in DU's hands in Dubai, or people using it for international calls still do not justify the market price.
DU, historicaly, has hit 7.XX in the not too recent past, when it was not even operational. The 2008-2009 collapse in share price is something of a return to realism on the part of investors. Notice I say "investors." Now, usually, when a financial security collapses in value, the aftermath will see some kind of bounce in value. Maybe that is what we are seeing here happen with DU. Also an AGM or EGM is imminent, and usually, before such events stock prices behave unusually. In this case, DU stock has shot up in price.
One more thing regarding

[sharewadi]

Sigh

Please don't turn this into yet another topic about inflation and hyperinflation. There are two already and I would like to keep the inflating number of locked topics to a minimum .

Props and fayesloan, I suggest you ignore each other's posts. Don't read them, don't refer to them, don't quote them. I know some forums have the functionality for members to set that up themselves but I'm afraid this one doesn't at present. One day I'll get around to an upgrade ...
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[dubaigreens]

Du had Vodaphone to back its growth and efficiency aspirations. There is only one way for this firm to go and its best to get on the wagon before it rolls faster.

[sharewadi]

[sharewadi]

Du results released this morning for 2009 Q3
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[Prop]

Some one commented that du can't expand international.

Well, the solution is to team with some one who is already International , such as Vodaphone. The potential is high, in my humble opinion.

[Prop]

Bellow is a well written summary of our discussion above.

Bloomberg 01 November 2009:

Du to Spend $680 Million on Network Expansion as Profit Surges Emirates Integrated Telecommunications Co. aims to spend as much as 2.5 billion dirhams ($680 million) this year expanding its network as the United Arab Emirates second-biggest telephone company doubled its quarterly profit after gaining new customers. The Dubai-based company’s investment will total between 2 billion dirhams and 2.5 billion dirhams by the end of this year as infrastructure spending started “paying off,” Chief Executive Officer Osman Sultan said in a conference call today. Third-quarter profit surged to 78.55 million dirhams ($21.4 million), or 2 fils a share, from 31.5 million dirhams, or 1 fil, in the year-earlier period, the company, also known as Du, said in a statement to the Dubai bourse today. Du made a “royalty payment” of 78.55 million dirhams in the quarter. Du, which competes with Emirates Telecommunications Corp. in offering fixed-line, mobile and Internet services, is seeking to boost profit by gaining clients who spend more on services such as downloads or high-speed Web connections. Emirates Telecommunications, known as Etisalat, is expanding in Africa and Asia, targeting clients in markets with young and growing populations. Du is in the “mindset” of forming partnerships and seeks to start expansion beyond its home base in the first half of next year, Sultan said. “That is a major priority moving forward,” he said. “Doing this means agreements need to be reached and discussions are really in an intense phase.” Revenue rose 26 percent to 1.33 billion dirhams in the third quarter and earnings before interest, tax, depreciation and amortization almost tripled to 297.3 million dirhams. Active mobile subscribers jumped 51 percent from the third-quarter of last year to 3.14 million at the end of September, according to the statement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=akhTWxl6DKdU&pos=7