Telecoms + financial infrastructure companies had a solid 2Q despite inflation and a weakening currency: EGX-listed telecom and financial infrastructure companies recorded solid revenues and bottom lines in 2Q 2023 despite the effects of rising inflation, the EGP devaluation, and an ongoing FX shortage. Their strong performance is expected to hold steady over the medium and long terms, analysts Enterprise spoke with indicated, although challenges — including maintaining a positive net cashflow and diversified revenue streams amid regional expansion — prevail, our sources say.

A quick look at telecom players’ financials: Telecom Egypt reported a 19% y-o-y increase in its 2Q 2023 bottom line, hitting EGP 2.9 bn on revenues of EGP 14.2 bn, up 29% y-o-y, which the company attributed to its wholesale and retail divisions. Meanwhile, Raya Holdings subsidiary Raya CX’s bottom line soared nearly sixfold to EGP 81.8 mn in 1H 2023, according to the company’s earnings release (pdf). Raya CX’s strong performance came on the back of operational expansions, particularly in foreign markets such as Saudi Arabia, which helped offset the impact of the EGP devaluation.

The name of the game: Diversifying revenues + securing FX-denoninated revenues. For Telecom Egypt, the company’s USD-denominated revenues from international carriers, customers, and networks helped drive up revenues in EGP terms, with both of these segments showing y-o-y and q-o-q growth, according to the company’s earnings. These revenues helped offset cost pressures from domestic inflation, Al Ahly Pharos Senior Associate Mariam Wael told Enterprise. Meanwhile, Raya CX has been pushing forward with regional expansion plans, helping it diversify its revenue streams amid “an increasingly inflationary environment exacerbated by the volatility of the EGP,” CEO Ahmed Aboulezz is quoted as saying in its earnings release.

It’s much of the same for those in digital payments: State-owned, EGX-listed payments company E-Finance saw its revenues rise 38% y-o-y to EGP 967.5 mn in 2Q 2023, with net income after non-controlling interest rising 56% y-o-y to EGP 436.4 mn. EGX-listed payments giant Fawry’s adjusted net income rose to EGP 181.1 mn in 2Q 2023, up 342% y-o-y. Revenues grew 45% y-o-y to EGP 768.5 mn during the quarter.

Geographical expansion is a key ingredient in the recipe for consistently strong performance: Fawry and E-Finance intend to expand to Saudi Arabia, and are looking at receiving digital banking licenses in Egypt this year. The last quarter of the year may witness e-Finance group finalize its financial and digital investments while establishing its headquarters in the kingdom and officially beginning their operations, according to Ibrahim Sarhan.

Buoying revenue growth across the board: Getting the most value from customer bases + growing service offerings: Telecoms and payments companies have focused on maximizing value from their fixed customer base and expanding their service offerings, which contributed to bolstering revenues from different segments, Zilla Capital research head Aya Zoheir told us. These companies have also been cutting direct and indirect costs amid accelerating inflation, allowing them to maintain positive EBITDA levels, according to Zoheir, who expects the sector’s revenues to continue rising as companies continue to tap into a broader customer base.

What does the future hold? Challenges lie ahead, but there’s plenty of room for growth: The National Telecom Regulatory Authority is expected to sign off on mobile phone service price increases, which would help telecoms players secure better financials throughout the rest of the year, analysts told us. Market watchers are expecting prices to rise by 10-15%, Wael said. Meanwhile, Telecom Egypt is expected to see its mobile phone services improve in the back half of the year, partially on the back of a five-year national roaming agreement the company signed with Orange that will allow TE to use Orange’s mobile service infrastructure. This agreement is expected to slash in half Telecom Egypt’s interconnection costs, which account for some 25-29% of its total operating expenses, Wael said.

The government’s digital transformation push — and the work left to be done on financial inclusion — will also help drive growth for payments players: The government’s digitization and financial inclusion strategies mean there’s plenty of upside for companies in the digital payment space, analysts say. “Cashless transactions are extremely underpenetrated in Egypt, so this massive growth potential can likely overcome any expected hits to consumption activity due to inflation,” Noha Baraka, head of the fintech sector at CI Capital, previously told us. This potential is evident in banking services being front and center in digital payment companies’ revenues, such as Fawry, where its banking services segment was the single largest driver of the rise in revenues, accounting for 52% of overall topline growth, Zoheir said.

Your top infrastructure stories for the week:

  • The future Sohag wind hub is growing: Orascom Construction, Engie and Toyota Tsusho have land in Sohag for their planned 3-GW wind farm.
  • Financial close for Acwa’s Kom Ombo solar plant: Acwa Power has achieved financial close for its 200 MW solar project in Kom Ombo, the largest privately-owned solar plant in the country.
  • Fourth Dabaa reactor approved: The Egyptian Nuclear and Radiological Regulatory Authority gave the all-clear to Rosatom and co. to proceed with the construction of the fourth 1.2-GW reactor at the Dabaa nuclear plant.
  • Local construction companies eyeing business in Iraq: The Housing Ministry is putting together a list of local construction companies that it recommends for taking on infrastructure projects in Iraq.
  • Madinet Masr x ASEC Automation: Madinet Masr signed an MoU with Qalaa Holdings subsidiary ASEC Automation for the construction of an EGP 100 mn infrastructure and road network for the Cavana project at its New Cairo Sarai development.
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