(Bloomberg) -- Two Saudi Arabian telecom stocks have delivered the best returns in the nation’s equity market this year in a rally spurred by retail investors betting on reaping dividends. Most analysts see the gain as unsustainable.
Mobile Telecommunications Co., or Zain KSA, and Etihad Etisalat Co. have risen more than 43% this year, almost three times the advance in the main Saudi index. Analysts surveyed by Bloomberg are skeptical and have average target prices for the stocks that indicate a discount of about 10% and 20% from their current s, respectively.
Etihad Etisalat, known as Mobily, has climbed in 2019 after posting a smaller-than-expected loss for last year and an unexpected first-quarter profit. The company needs to find a balance between dividends and repaying debt, according to its Chief Financial Officer Kais Ben Hamida, after halting payouts in 2014.
Mobily’s share gain “is driven by speculation following the last couple of quarterly results” that dividends will shortly return, said Omar Maher, a telecom analyst at EFG-Hermes in Cairo. He doesn’t expect the company to resume payouts anytime soon with its current level of profitability and while it prioritizes deleveraging.
Zain reported a profit in the first quarter, but missed analyst estimates. Telecom stocks may also be benefiting from inflows after the country was included in major emerging-market benchmarks in recent months, Maher added.
©2019 Bloomberg L.P.
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