WARA has upgraded ONATEL’s regional currency long-term rating to ‘BBB’. This rating is one notch below the sovereign ceiling of Burkina Faso, which is established – according to WARA- to ‘BBB +’. In addition, WARA affirmed ONATEL’s short-term rating at ‘w-4’. The perspective attached to this notation is stable.
As a reference, the international currency ratings that WARA assigns to
ONATEL are: iB / Stable / iw-6.
Listed since 2009 in the first compartment of the stock market of the Stock Exchange
Regional Securities (BRVM), the company is a global operator and
telecommunications leader in Burkina Faso; it offers a range
complete products and services. ONATEL’s activity mainly includes
fixed telephony, the Internet and mobile telephony.
The threshold of 7 million subscribers has been crossed since 2016. In 2017, we observe
an increase in the number of customers by 3% compared to 2016, the mobile segment
remaining the main driver of ONATEL’s growth. The customer base
of ONATEL for fixed, mobile and internet segments continues to grow
and at the end of December 2017 stood at nearly 7.3 million customers. In 2017, the figure
ONATEL’s business amounts to 162.7 billion FCFA as a result of good initiatives
which rely on innovative products and services, on the
customer loyalty and especially on the continuous improvement of the quality of
service.
The intrinsic rating of ONATEL (BBB) is mainly based on the following factors:
Strong points
An activity generating high profitability, which allows ONATEL to generate a comfortable cash flow to finance part of its investments, reduce its debt and distribute dividends.
Maroc Telecom’s day-to-day operational support, which provides ONATEL with a clear vision on strengthening its competitiveness and on the projects to be put in place to achieve its objectives.
Proven expertise in the telecommunication services market, resulting from its status as incumbent operator. The company owns the country’s landlines and its infrastructure provides the best network coverage in Burkina Faso.
Weak points
ONATEL is a domestic operator, whose activity is naturally concentrated, which places it in a situation of vulnerability vis-à-vis the macroeconomic stakes of Burkina Faso, particularly with respect to a social risk that has already the past weakened the activity of ONATEL.
A legacy of ONATEL’s past as a heavy public company to bear: i) an aging image and infrastructure that requires maintenance and modernization investments;
(ii) a state of overstaffing, the resorption of which will take time; and (iii) a public service mission imposed by the regulator to continue to provide Burkina Faso’s population with fixed telephony services throughout the country, despite its limited use.
An unstable regulatory and fiscal environment that stems regularly from the results of telecom operators in Burkina Faso. New taxes are regularly imposed on operators, and fines are levied for non-compliance with specifications that are perceived as very strict.
The perspective attached to the ONATEL rating is stable. WARA justifies this stable outlook by the fact that even if the competitive forces of the telecommunications services sector in Burkina Faso are very intense, leading to a slight dilution of its market shares, ONATEL should retain a dominant position.
This stable perspective is also explained by the company’s commercial strategy as well
investments to maintain its competitiveness while remaining innovative.
The rise in ONATEL’s rating stems in part from the expansion of its product line (Mobicash, 4G), which allows the company to better diversify the services offered to its customers.
The other important element to highlight is the resilience of ONATEL, which was able to weather the social crisis that had shaken it at the end of 2016. Added to all this is the robust financial performance observed over the past five years.
An improvement in ONATEL’s rating would depend on:
i) an improvement in Burkina Faso’s rating, which seems unlikely in the short term;
(ii) significant and sustained market share gains in mobile telephony to widen the gap with competition;
(iii) modernization of infrastructure to significantly improve the quality of the network;
(iv) the reduction in the deficit of the fixed activity, in particular by the combined action of a development of this part of the turnover and by a reduction of the charges
staff;
and (v) improved collection times for trade receivables.
A deterioration in ONATEL’s rating would be the consequence:
i) a significant and lasting deterioration of ONATEL’s results by a decrease in its market share and turnover;
ii) the materialization of the social or political risk in Burkina Faso, which could durably weaken the national economy and the activity of ONATEL; or
iii) the increase in legal and tax pressure that could harm ONATEL’s business.
For reference, WARA estimates that the probability of occurrence of the favorable scenarios is equal to that of the adverse medium-term scenarios, which means in other words that the current rating of ONATEL contains as many enhancement possibilities as risks of lowering.
