By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Average daily turnover in November continued to improve, increasing 24% on the back of October’s 24% month-on-month growth. However, the recovery is coming from an incredibly low base and still shows the average daily turnover in-line with the dismal levels of September, which were among the lowest for some time (chart below).

With the gradual recovery in turnover, the market, as measured by the RSISUSD Index, moderated its month-on-month declines, down -1.7% for the month- continuing to test the major bottom of May 2016.

However, the end the Arbaeen, summer, and the government formation are yet to mark the end of the period of, probably, the lowest daily trading volumes on the Iraq Stock Exchange (ISX) since it first witnessed an expansion in volumes in 2010. The anomaly and un-sustainability of these low levels was discussed last month, and logic continues to argue for a reversion to the mean.

(Source: Iraq Stock Exchange, Rabee Securities, Asia Frontier Capital)

It was also argued last month that an uptick in M2 (broad money and a proxy for economic activity) could imply that liquidity, brought on by a two-year recovery in government finances, has finally begun to filter down into the economy – which should accelerate as the new government begins to act on its spending programme.

A nascent recovery in telecoms adds support to this line of reasoning. The two major mobile operators out of three national operators, reported Q3/2018 earnings that display the markers of recovery in earnings, margins and profits. Of the two, AsiaCell (TASC) has been listed since 2013 and as such its reported earnings span the period 2012-2018, and thus reflects the operating environment before, during and just after the ISIS conflict.

(Sources: Rabee Securities, ISX, Company reports, Asia Frontier Capital)

TASC’s earning’s profile marked by rapidly increasing revenues – driven by the country’s adoption of mobile phones – peaked in 2013. The turn for the worst started in late 2013 with the increasing violence before the May 2014 elections, which accelerated by mid-2014 with the ISIS invasion and the loss of over a third of the country, and with that a significant loss in TASC’s subscriber base.

The roll out of 3G in early 2015 brought its own set of problems. The amortization of the fees of $307 million (on top of fees of $1,250 million in 2007 for a 15-year licence) to access the 3G spectrum increased costs meaningfully. While, revenues took a hit as free IP voice telephony soon replaced most expensive regular telephony-especially for international calls, while data fees could not fully replace these lost voice revenues. This was compounded by increased competition among the three mobile operators as they sought to replace both lost consumers and voice revenues through competitive price offerings to lure consumers from each other.

Capping the woes of mobile operators was the severe economic decline brought about by the ISIS conflict and the collapse oil prices as non-oil GDP declined by -3.9%, -9.6% and -8.1% for 2014, 2015 and 2016, respectively.  Finally, the resultant weaknesses in both consumer and business demand was made much worse with the introduction of 20% VAT on phone cards in the summer of 2016.

For TASC, the revenue decline, while cost increases crushed its profits (as the chart above shows), however this decline in profits was moderated by very strict cost controls and decreasing capital expenditures reflecting an earlier heavy investment in infrastructure.

The bottoming in revenues over the last few years came to end in late 2017 with the liberation of Mosul and the gradual return of customers which contributed to the recovery in profitability. The company signalled its confidence in its future outlook with a distribution of a 12% dividend on the back of last year’s 14% dividend – however, in absolute terms the dividend is about one third higher than that of last year. The grandfathering of the transition to 3G, the amortization of the licence and the effects of the VAT introduction, all coupled with the return of customers as well as the expected growth in data usage should lead to a healthy period of resumed earnings growth.

The next few quarters should see a similar recovery for the battered banking sector, with probably the first to recover being the quality of loans. A return of liquidity and an economic pick-up should be followed by a recovery in the quality of bad loans and the reversal of NPL’s (non-preforming loans) with past provisions becoming earnings, thus providing the first boost to earnings recovery. This should be followed by growth in loans and deposits, as should growth in trade finance revenue, and therefore similarly to the case of telecom should lead to a resumption of a period of earnings growth, and with-it better stock price performance. For more details on the banks see “Of Banks and Budget Surpluses”.

Recovery, in frontier markets, is a mirror image of Mark’s Twain’s phrase on going broke, in that recovery happens gradually and then suddenly. If similar experiences in other frontier markets of declining prices while fundamentals point to a start of a gradual recovery, then the trend of the last few months could be followed by a sharp reversal to the upside.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

By John Lee.

Asiacell Iraq has benefitted from improvements in the security and economic situation in the country, according to its parent, the Qatari company Ooredoo.

In its results for the first nine months of 2018, the company said:

With more areas liberated and network restoration underway, Asiacell reported a 3% increase in Revenue to QAR 3.5 billion at 9M 2018, compared to the same period last year.

“EBITDA was up 8% to QAR 1.6 billion, growing at a faster rate than revenue and reflecting good efficiency management.

Customer base increased 6% to 13.3 million customers for the 9M 2018 period, and Asiacell received the prestigious CARE award for its excellence in customer care service.”

(Source: Ooredoo)

(Picture: Faruk Mustafa Rasool, Chairman of Asiacell)

Comtech Telecommunications Corp. (Nasdaq: CMTL) announced on Monday that during its first quarter of fiscal 2019, its Orlando, Florida-based subsidiary, Comtech Systems, Inc., which is part of Comtech’s Government Solutions segment, has received a $9.1 million sole-sourced contract from The Program Executive Office (PEO) Command, Control, Communications, Computers and Intelligence (C4I), International C4I Integration Program Office (PMW 740), to supply equipment and services in support of an existing C4I Surveillance and Reconnaissance Maritime Surveillance System owned by the Iraqi Navy.

Comtech will be supplying thermal imaging radar in conjunction with Comtech’s advanced digital troposcatter communications systems and backhaul microwave terminals. The communications network will provide radar and sensor data to an existing Command and Control facility.

In commenting on this important award, Fred Kornberg, President and Chief Executive Officer of Comtech Telecommunications Corp., stated:

“I am excited to be able to announce this important contract with a new foreign government end customer. While the sales cycles for opportunities of this type are long, this win is further evidence that demand for troposcatter equipment around the world is growing. We look forward to working with the U.S. FMS and Iraqi Navy on this and future opportunities.”

Comtech Systems, Inc. (www.comtechsystems.com) specializes in system design, integration, supply and commissioning of turnkey communication systems including over-the-horizon microwave, line-of-sight microwave and satellite.

Comtech Telecommunications Corp. designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. The Company sells products to a diverse customer base in the global commercial and government communications markets.

Certain information in this press release contains statements that are forward-looking in nature and involve certain significant risks and uncertainties. Actual results could differ materially from such forward-looking information. The Company’s Securities and Exchange Commission filings identify many such risks and uncertainties. Any forward-looking information in this press release is qualified in its entirety by the risks and uncertainties described in such Securities and Exchange Commission filings.

(Source: Comtech)

Zain Iraq has selected Ericsson (NASDAQ: ERIC) to modernize a number of its legacy sites with Ericsson Radio System in a contract signed recently that serves to strengthen the partnership of the two companies.

Under the terms of the deal, Ericsson will reinforce its role as a trusted business partner by providing higher capacity and improving network performance.

In an effort to accelerate digitalization in the region, Zain Iraq and Ericsson are enabling rapid deployment of innovative services in the Internet of Things (IoT) in the coming years. The partnership will also ensure seamless 4G and 5G evolution across Zain’s networks

Ali Al Zahid, Zain Iraq Chief Executive Officer, says:

“Zain is committed to bringing the latest technology and cutting-edge services to its customers.  Upgrading current networks with the latest technology to cater for increasing traffic volumes and enhanced customer experience is a key priority. It also reflects our commitment to providing the mobile community in Iraq with the highest quality of service available.”

In addition to consumer services, security and energy companies are some of several industries starting their own digital transformations. Ericsson Radio System offers far more than the benefit of capacity building and performance, it also provides high bandwidth for content-rich applications.

Rafiah Ibrahim, Head of Ericsson Market Area Middle East and Africa, says:

“I am glad that we continue a good cooperation with our long-term partner Zain.  This new contract will accelerate Zain’s digital journey and build its digital infrastructure with the introduction of new services and virtual functions.  This will enable Zain to deliver the best possible user experience in two major cities in Iraq and meet the data demands of tomorrow in a timely manner.”

Zain Iraq and Ericsson are pioneering the use of next-generation networks with the anticipated increase in data traffic as IoT promises new capabilities and use cases.

Network modernization and adoption of new technologies are essential to meeting users’ demand for capacity and coverage. Modernizing the network infrastructure of Zain Iraq’s network services will not only improve end-user experience through increased capacity, but also accommodate future needs.

(Source: Ericsson)

By John Lee.

Zain Iraq performed “exceptionally well” in H1 2018 when compared to H1 2017 with revenues reaching USD 558 million, a 7% increase Y-o-Y and EBITDA reached USD 194 million, up 8% reflecting an EBITDA margin of 35%.

According to a statement from the company, the operation reported a net profit of USD 18 million, up 66% on the USD 11 million profit recorded for H1 2017.

The expansion of 3.9G services across the country and restoration of sites in the West and North of the country, combined with numerous customer acquisition initiatives, especially in core regions, resulted in an impressive addition of 1.9 million customers (15% increase) to reach 14.7 million.

Also contributing to the operation’s financial revival was the significant growth of data revenues, robust growth in the Enterprise (B2B) segment and the revamping of its call centers significantly improving customer service.

(Source: Zain)

(Pictured: Bader Al-Kharafi, Vice-Chairman and Group CEO)

UK-based ONEm is partnering with Asiacell to bring unlimited news and entertainment content from Reuters to Iraq.

Asiacell subscribers can now exclusively access global news on any mobile device.

The #Reuter service provides full coverage of real time news and entertainment content in Arabic delivered by SMS.

Users interact with the #Reuter service menu by SMS and receive their chosen category of news and entertainment content from returned SMS, enjoying unlimited use of the service for 600 IQD per week.

(Source: ONEm)

The International Finance Corporation (IFC), a member of the World Bank Group, is providing a financing package of $269 million to Zain Iraq, a leading mobile network operator, to help reconstruct the country’s telecom operations and spur economic growth.

IFC arranged a $269 million debt package including $100 million from IFC’s own account, and $169 million in mobilization.

The mobilized amount includes a B Loan from Arab Bank, a loan through the IFC Managed Co-Lending Portfolio Program, a new syndications platform that offers institutional investors the ability to passively participate in IFC’s future senior loan portfolio, and a parallel loan from DEG and Finnfund.

The financing will help Zain Iraq enhance the capacity and quality of its 3G network and expand coverage to unserved areas, as well as helping the company modernize its networks and customer service in northern Iraq.

“This financing from IFC and partners will help us strengthen our footprint, modernize infrastructure, and provide a better quality of service to our customers,” said Ali Al-Zahid, the CEO of Zain Iraq. “It will also enhance access to higher quality broadband, a key enabler of broad economic activity, for both consumers and businesses.”

Iraq is one of the least developed telecom markets in the Middle East region due to the fragile security situation, and mobile network operators have struggled to maintain their networks and have refrained from investing heavily in infrastructure.

“Supporting infrastructure development in Iraq is an essential building block of the reconstruction effort,” said Mouayed Makhlouf, IFC Regional Director for the Middle East and North Africa. “Restoring and enhancing broadband infrastructure can have a substantial multiplier effect on the economy through increased connectivity and reduced transaction costs, enhanced flows of information, and more efficient and effective matching of market players, among many other much needed benefits.”

By arranging and mobilizing a seven-year loan in a country where long-term financing options remain limited, IFC’s investment will support Zain Iraq’s growth plans, while sending a positive signal to domestic and international players at a critical point in the country’s recovery.

Zain Iraq has been an IFC partner since 2011, when IFC arranged a $400 million syndicated loan for the company. This included mobilization of $195 million from DEG, Proparco, FMO, and the Infrastructure Credit Facility.

(Source: IFC)

By John Lee.

Revenues at Zain Iraq reached $275 million in the first quarter of 2018, a 9-percent increase year-on-year.

EBITDA reached $96 million, up 12 percent, reflecting an EBITDA margin of 35 percent.

The operation reported a net profit of $8 million, substantially up on the $283,000 profit recorded for Q1, 2017.

The expansion of 3.9G services across the country and restoration of sites in the West and North, combined with numerous customer acquisition initiatives, especially in core regions, resulted in impressive addition of 2.2 million customers (18 percent increase) to reach 14.5 million.

Also contributing to the operation’s financial revival was the significant growth of data revenues, robust growth in enterprise (B2B) segment, and the revamping of its call centers significantly improving customer service.

(Source: Zain)

By John Lee.

Qatar-based Ooredoo has announced that revenue at its Asiacell subsidiary in Iraq increased 6 percent to QAR 4.5 billion, while and EBITDA increased 3 percent to QAR 2.0 billion, for the year ended 31th December 2017.

EBITDA margin was put at 44 percent.

In a statement, the company said:

A key opportunity in 2017 was restoring our network sites in the liberated areas and helping customers living there to reconnect to our services.

“As a result, Asiacell increased customer numbers by 8% to reach almost 13 million as network recovery advanced in the liberated areas in the north and west of the country.

(Source: Ooredoo)

By John Lee.

Plans are reportedly progressing to launch a free ka-band satellite broadband service in Iraq in the second quarter of 2018.

UK-based Quika promises the world’s first entirely free high-speed satellite internet for consumers in developing countries.

Its free plan will be funded by paid-for services for enterprises and internet providers.

According to Engadget, the company is led by the chief of satellite provider Talia.

(Source: Engadget, Quika)