The Securities & Investment Company releases an extensive report on Batelco

The 40-page report aims at providing investors with a better understanding and evaluation of their investment decisions.

The research department at SICO have published the report to their brokerage customers as well mailing lists and news providers and distributors.

Some of the findings highlighted in the report are:

- The telecommunication services sector in GCC and the wider MENA markets is witnessing unprecedented growth rates as a result of liberalization and increased competition.

- Batelco which has shed its past image with its recent acquisition of Umniah, mobile operator in Jordan, stands to benefit from enhanced valuation multiples and improved top and bottom lines.

- Batelco's new management has undertaken a number of initiatives to help wake a sleeping giant. Acquisition of Umniah, Batelco's first major inorganic expansion, helps it expand mobile subscriber base to over 1 million (a critical criteria for participating in bids in the region).

- The forecasts above have yet to factor in the significant benefits that will accrue from Umniah. Our broad calculations (given the lack of information at this stage) indicate that it will help accelerate growth to double digits and enhance Batelco's top and bottom lines considerably.

- The acquisition will also improve Batelco's asset utilization (over half of Batelco's assets are cash and equivalents which generate only marginal returns of 1.8% versus the 33% it generates on operating assets).

- Batelco's Q2 results have further validated the encouraging signs of margin improvements (41% compared to 37% during 2005) we saw in Q1, as out payments to operators decline and, cost cutting initiatives and focus on other sources of revenues start to bear fruit. We believe this will continue over the ensuing quarters.

- Batelco currently trades at a P/E of 11.1x 2006E a discount of 20% to its peers. Batelco is an interesting investment with a sound balance sheet, healthy valuations and a comfortable dividend yield of 4.7%. Key value drivers include margin expansion as cost savings and new businesses improve asset utilization, news on further acquisitions and a possible leverage of a zero debt balance sheet to drive shareholder value. We initiate coverage with a BUY with a fair value of BD 1.076 (27% upside).

SICO is the first investment house to publish a report since Batelco's acquisition of Jordan's mobile operator: Umnia. The report incorporates the recently published second quarter results.