Vodafone Egypt Financial Analysis

Vodafone Egypt – VE

EGYPT

Telecommunication Sector

August 4, 2005

New Tax Law Pull Bottom Line Up

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HOLD

Egypt’s cellular penetration rate has reached 13.5% at the end of June 2005,

up from 12.2% at the end of March 2005. Moreover, the national cellular subscribers are estimated to have reached 9.6 million, following the sale of 914k

SIM cards during the last quarter.

Target Price

LE88

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Due to Mobinil’s more aggressive marketing strategy, VE captured only 40%

of this quarter’s sold SIM cards, which resulted in its market share falling from

47.6% at the end of March to 46.9% at the end of June.

Recent Price

LE92

Upside Potential

- 5%

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VE’s net income meanwhile increased to LE334 million in 1Q FY06 reflecting

23% and 79% growth compared to LE271 and LE187 million in 4Q FY05 and

1Q FY05 respectively , as a direct result of tax provisions booked at 22.5%

compared to over 40% booked in the comparable periods, following the passing of the new tax law which reduced VE’s tax bracket from 42% to 20%.

However, NPBT recorded 9.3% decline on q-o-q, as a result of the amortization of the new frequency purchase and 1.9% lower EBITDA figure.

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The expansion of prepaid subscribers to represent 85.8% of VE’s total subscribers, up from 82.6% in December 2004, along with the lower per minute

rates and minute discounts have collectively pulled the quarterly ARPU down

to LE98 during 1Q FY06, compared to LE104 in the previous quarter.

Revenues, EBITDA and net income are expected to expand 24.8%, 22.8%

and 36.8% in FY06 compared to FY05’s corresponding figures to reach LE5.5

billion, LE2.9 billion and LE1.44 billion respectively.

MCIT minister has revealed that a third 2G license would be offered early next

year, to be operational by early 2007. Meanwhile, we have projected that the

new entrant will capture 10.7% of the market come March 2010, while VE

would have 43% market share in a market which will...