Saudi Telecom (STC) — Q1 2026 Research Note
STC delivered steady Q1-26 results — revenue up 3.8% to SAR 19.9bn and normalized earnings up ~12% — on gross-margin expansion and subscriber growth, even as its Channels line keeps shrinking. The stock sits at a crossroads: Aljazira Capital sees ~16% upside to a SAR 49.6 target, while a conservative discounted-cash-flow lens reads it as already full at SAR 43.
The market backdrop
The Saudi index (TASI) has traded roughly flat year-to-date, and STC has tracked it closely (−0.4% YTD), oscillating in a SAR 40–48 band over the last year. Telecom is a defensive, dividend-heavy corner of the market, so it tends to lag in risk-on rallies and hold up in pullbacks rather than lead either way.
Sector and where STC sits
STC is the dominant operator in Saudi telecom by some distance — roughly SAR 217bn market cap versus peer Mobily's ~SAR 49bn. On growth, STC's three-year revenue CAGR of ~4.9% trails Mobily's ~7.7%, reflecting STC's far larger, more mature base; on valuation the two are similar (P/E ~14.6x vs ~14.0x). Against the market's mega-cap leaders (Aramco, Al Rajhi Bank), STC is a slower-growing but high-cash-return name — its appeal is yield and stability, not top-line acceleration.
What drove the quarter
Revenue rose 3.8% Y/Y to SAR 19.9bn, led by the Commercial segment (+5.2%) and carriers & wholesale (+6.2%); KSA mobile subscribers grew 5.3% to 30.6mn and fixed lines 3.1% to 6.1mn. The standout was margin: gross margin expanded ~160bps to 49.0%, lifting EBITDA 7.1% to SAR 6.6bn (32.9% margin) and operating profit 11.0%. Reported net income rose only 1.3% to SAR 3.7bn, but on a normalized basis — stripping Q1-25 one-offs — earnings grew ~12%. The same one-off dynamic explains the annual optics: FY24 net income spiked to SAR 24.7bn before "falling" to SAR 14.8bn in FY25, so the underlying trend is steadier than the headline swing suggests. The clear soft spot is Channels revenue, down 13% — though smaller units (Specialized by STC +526%, Solutions +6.3%, plus Sirar and STC Bank) are scaling and could pick up the slack as they mature.
Valuation — two honest lenses
Our own engine blends multiple methods to a fair value of SAR 33.99, putting the SAR 43.42 price at a premium (a "value" verdict of overvalued). The spread inside that blend is telling: a conservative DCF lands near SAR 25 (it discounts STC's modest growth and high capital intensity hard), while a dividend-discount view lands near SAR 61 — STC's ~5% yield (DPS SAR 2.20) is worth a lot when capitalized. The median sits in between.
Aljazira Capital takes the more constructive side. It maintains an Overweight rating with a SAR 49.6 target (~15.8% upside), arguing the margin expansion and maturing subsidiaries support earnings, and noting the stock trades at EV/EBITDA 8.4x, P/E 16.1x and a 5.1% forward yield — undemanding for a market-leading, cash-generative incumbent.
The balanced read
The bull case rests on durable margins, a stable subscriber base, and a high, well-covered dividend; the cautious case rests on low-single-digit top-line growth and a price a strict DCF already finds full. Both can be true: STC is a low-growth, high-yield compounder whose value hinges almost entirely on how you weight the dividend versus the growth. Things to watch into next quarter: whether Channels' decline stabilizes, the pace at which Specialized/Sirar/STC Bank contribute to profit, and the sustainability of the payout (FY25 DPS stepped down from SAR 3.75 to SAR 2.20).
Sources: Aljazira Capital "STC Results Flash Note Q1-26" (Apr 2026); Hajras financials, DCF/DDM valuation, and peer data. Informational only — not investment advice.
Informational only — not investment advice. Sources: Aljazira Capital STC Results Flash Note Q1-26; Hajras financials & valuation