* Upgrades Zain post African assets disposal
* Says potential upside from further asset sales possible
July 5 (Reuters) – Credit Suisse upgraded Kuwaiti telecoms firm Zain (ZAIN.KW) by two notches to “outperform,” and said the market underestimates the strength of cash generation in the company’s Middle Eastern assets and potential for substantially lower group overheads post the Africa disposal.
The brokerage, which previously had an “underperform,” rating on the stock, also raised its share-price target to 1.4 dinars from 0.9 dinars.
Last month, Bharti Airtel Ltd (BRTI.BO) completed its $9 billion acquisition of the African operations from Zain in a deal that makes the Indian firm the world’s fifth biggest cellphone company by subscribers. [nSGE65802V]
“Free of financial drag and organisational overstretch in Africa, we see Zain as stronger, more clearly focused and with a newly shareholder-friendly emphasis on cash distribution,” the brokerage said. Zain’s African exit signals the possibility of wider retrenchment given shareholder focus on cash returns, Credit Suisse said, adding that it expects potential upside from further asset sales.
The brokerage said Zain could pay a 0.35 dinars-per-share 2010 dividend and still generate at least 0.1 dinars-per-share of underlying earnings.
“We expect sporadic news reports on possible M&A interest in Zain and potential dividend payments to continue,” it said.
Shares of the company were up 2 percent at 1.1 dinars at 0855 GMT.
(Reporting by Mary Meyase in Bangalore; Editing by Maju Samuel)
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