{"id":605829,"date":"2023-09-06T00:00:00","date_gmt":"2023-09-06T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/telecoms-tech-firms-players-are-doing-well-despite-macro-headwinds-but-have-a-challenging-road-ahead\/"},"modified":"2023-09-06T00:00:00","modified_gmt":"2023-09-06T00:00:00","slug":"telecoms-tech-firms-players-are-doing-well-despite-macro-headwinds-but-have-a-challenging-road-ahead","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/telecoms-tech-firms-players-are-doing-well-despite-macro-headwinds-but-have-a-challenging-road-ahead\/","title":{"rendered":"Telecoms + tech firms players are doing well despite macro headwinds \u2014 but have a challenging road ahead"},"content":{"rendered":"

Telecoms + financial infrastructure companies had a solid 2Q despite inflation and a <\/strong> weakening currency: <\/strong> 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 \u2014 including maintaining a positive net cashflow and diversified revenue streams amid regional expansion \u2014 prevail, our sources say. <\/p>\n

A quick look at telecom players\u2019 financials: <\/strong>Telecom Egypt reported<\/a> 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\u2019s bottom line soared nearly sixfold to EGP 81.8 mn in 1H 2023, according to the company\u2019s earnings release (pdf)<\/a>. Raya CX\u2019s 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. <\/p>\n

The name of the game: Diversifying revenues + securing FX-denoninated revenues. <\/strong> For Telecom Egypt, the company\u2019s 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\u2019s 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 \u201can increasingly inflationary environment exacerbated by the volatility of the EGP,\u201d CEO Ahmed Aboulezz is quoted as saying in its earnings release. <\/p>\n

It\u2019s much of the same for those in digital payments: <\/strong> State-owned, EGX-listed payments company E-Finance saw its revenues rise<\/a> 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\u2019s adjusted net income rose<\/a> 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. <\/p>\n

Geographical expansion is a key ingredient in the recipe for consistently strong performance: <\/strong>Fawry<\/a> and E-Finance<\/a> 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.<\/p>\n

Buoying revenue growth across the board: Getting the most value from customer bases <\/strong> + growing service offerings: <\/strong> 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\u2019s revenues to continue rising as companies continue to tap into a broader customer base.<\/p>\n

What does the future hold? Challenges lie ahead, but there\u2019s plenty of room for growth: <\/strong> 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<\/a> the company signed with Orange that will allow TE to use Orange\u2019s mobile service infrastructure. This agreement is expected to slash in half Telecom Egypt\u2019s interconnection costs, which account for some 25-29% of its total operating expenses, Wael said. <\/p>\n

The government\u2019s digital transformation push \u2014 and the work left to be done on financial <\/strong> inclusion \u2014 will also help drive growth for payments players: <\/strong> The government\u2019s digitization and financial inclusion strategies mean there\u2019s plenty of upside for companies in the digital payment space, analysts say. \u201cCashless transactions are extremely underpenetrated in Egypt, so this massive growth potential can likely overcome any expected hits to consumption activity due to inflation,\u201d Noha Baraka, head of the fintech sector at CI Capital, previously told us<\/a>. This potential is evident in banking services being front and center in digital payment companies\u2019 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. <\/p>\n

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