Stock Valuation of Telecommunication Provider in Saudi Arabia with the Case Study of Tawal Spin-Off of Saudi Telecom Company (STC)

This study investigates the stock valuation implications of the strategic spin-off plan involving Tawal, the biggest telecom tower infrastructure provider in Saudi Arabia, a 100% owned subsidiary of the Saudi Telecommunications Company (STC). Saudi Public Investment Fund (PIF) has sent a nonbinding offer to acquire 51% of Tawal's shares from the STC group, which is aligned with the Saudi Vision 2030 strategy. The findings of this research contribute nuanced insights into the relationship between spin-offs and stock valuation within the context of the telecommunications industry. By scrutinizing the anticipated impact of the Tawal spin-off on STC stock price, this study provides valuable information for investors and the STC group navigating the strategic decisions and their implications for the stock value. The research employs a comprehensive stock valuation framework with absolute-relative valuation, internal-external analysis, and risk assessment to gauge the potential effects on STC's respective stock values of the Tawal spin-off. Comparative analyses conducted within the telecommunications sector in Saudi Arabia offer valuable benchmarks for assessing the performance of STC Group. According to the intrinsic valuation approach and the Discounted Cash Flow model, STC stock price is undervalued compared to the stock price of 19th November 2023 by 38.3 SAR. Assuming the spin-off failed, obtaining the fair price at 41.5 SAR per share based on the DCF model and 54.2 SAR based on the relative valuation PE ratio. If the Spin-off is agreed upon and concluded, the fair price is valued at 42.6 SAR per share based on the DCF model. Sensitivity analysis and Monte Carlo simulation resulted in two results: the gross profit margin is a sensitive variable of the stock price movement, and the buy option is preferable. In line with that, STC has a solid holding organization, is financially healthy, and has sustained a competitive advantage. STC is expected to deploy the liquidity into investment and expansion in the region and globally, generating a higher return to satisfy the investor interest.