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Investing.com -- Shares of Saudi Telecom (BCBA:TECO2m) Company (STC) climbed 3% today following the announcement of a significant government telecommunications infrastructure contract valued at SAR32.64 billion (US$8.7 billion).
The contract, which entails building, operating, and providing telecommunications infrastructure services, is set to have an 18-month preparation and execution phase, followed by a 15-year operational period.
The positive market response is attributed to the substantial financial impact the contract is expected to have on stc's consolidated financial statements, with recognition beginning in the fourth quarter of 2026 and lasting until the end of the contract period.
Analysts at Jefferies commented on the development, stating, "We est project NPV could be 1.1% of stc mcap, and we would expect +ve stock reaction. Overall, stc is on 5.2% 2025E DY and bigger re-rating needs comfort on capital allocation."
Financial considerations of the contract suggest that an additional annual payment of approximately SAR2 billion, which is an estimate and not confirmed by the company, would equate to 2.2% of stc's projected group revenue for 2027. The net present value (NPV) of the project is estimated at around SAR2.3 billion, factoring in an 8.9% weighted average cost of capital (WACC).
These figures are based on key assumptions, including an expected revenue increase from SAR1.0 billion in 2026 to SAR2.0 billion in 2027, and a steady growth to SAR2.1 billion from 2028 to 2041. Additionally, the project is anticipated to achieve a 40% EBITDA margin in 2027, increasing to 50% from 2028 onwards.
The initial cumulative capital expenditure is projected to be close to US$1 billion from 2025 to 2027, with normalized maintenance capex/sales of approximately 5% from 2028 to 2041. The contract's duration of 16.5 years and the financial implications underscore the strategic significance of this deal for stc's long-term growth and market capitalization.
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