stc stake sale boosts MSCI appeal, attracts foreign inflows: Analysts

Logo of Saudi Telecom Co. (stc)

The Saudi market saw the Public Investment Fund (PIF) sell a 2% stake in telecom firm stc as part of its capital recycling strategy.

The move is set to boost stc’s weight on the MSCI index, attract more foreign investment inflows, and strengthen investor confidence in its stable performance and dividends.

Analysts surveyed by Argaam foresee increased trading activity and volatility in stc shares. They noted that a larger free float will enhance liquidity and could drive institutional demand, raising market value over time, while emphasizing that the deal does not alter stc’s market cap since it is not a new issuance.

Expected impact of the sale on stc's market share

Market analyst Abdullah Al-Jubaili

Market analyst Abdullah Al-Jubaili expects heightened trading activity and increased volatility in stc shares.

Hussein Al-Attas, a financial consultant, stated that expanding the free float should enhance liquidity and potentially drive institutional demand, boosting market value over time. He added that market reaction will depend on external demand strength, potentially causing short-term price swings with a positive impact as demand stabilizes and investor confidence builds.

Anas Al-Rajhi told Argaam that the deal would not change stc’s market value, as it represents a transfer of ownership, not a new issuance. He noted that this move could enhance stc’s on MSCI and Saudi indices, increasing its appeal to global investors and drawing more foreign inflows.

Long-term impact of PIF’s sale of 2% stake in stc

Al-Jubaili stated that the PIF’s sale of a 2% stake in stc aligns with its four-year strategy to trim holdings in key firms, recycle capital, and target more attractive investments, underscoring PIF’s dynamic approach.

Hussein Al-Attas, Financial Consultant

Al-Attas said selling a small stake boosts liquidity and trading activity, attracting new investors and enhancing market appeal.

He added that over time, this move is expected to bolster investor confidence in stc and increase foreign inflows through a broader shareholder base and higher free float.

Market analyst Anas Al-Rajhi highlighted that PIF’s sale strategically raises stc’s free float, boosting its MSCI index weight.

He noted that this change could drive higher foreign investment inflows, reflecting strong confidence in stc’s stable performance and dividends. High demand for shares, with 500% oversubscription, signals positive market sentiment toward stc’s growth and role in telecom and digital services.

He added that stc remains a flagship for Tadawul and the Saudi market, attracting local and international investor interest due to its strong financial position and robust indicators.

Factors that make stc attractive to foreign investors

Al-Jubaili highlighted that the fund’s exit provides greater opportunities for foreign investors to acquire shares in attractive companies, and there is no doubt that stc is one such, especially considering its dividend distributions and its expansion plans across multiple sectors, including its recent foray into the digital banking sector.

Al-Attas emphasized that one of the key factors driving stc’s appeal to foreign investors is its dominant position in the Saudi telecom sector, alongside its expansion into digital services and 5G technology.

He also noted that government support for the telecom industry, along with the digital transformation focus outlined in Vision 2030, strengthens growth prospects. Additionally, the decision to allocate approximately 40% of the offering to foreign investors reflects confidence in stc’s attractiveness and is expected to further stimulate foreign investment.

Al-Rajhi added that stc’s strategic investment appeal is driven by its solid financial position and its commitment to delivering attractive annual dividends.

The company increased its quarterly dividend payouts from SAR 0.40 to SAR 0.55 starting from Q4 2024, resulting in an annual cash yield of approximately 5.5%, including Zakat, which is appealing to investors seeking steady returns.

Al-Rajhi also highlighted that stc’s strong track record of additional distributions, having paid an extra SAR 1 in 2020 and 2023, and SAR 2 in 2018, reinforce investor confidence for the long term

How raising free float affect stc’s weight on MSCI index

Al-Jabali said that stc will witness an increase in its weight on the MSCI index, but it will not significantly affect the weight of the entire market on the MSCI index.

Al-Attas pointed out that raising the ratio of the MSCI index will improve stc’s weight on the MSCI index, which may attract more institutional investments that follow this index.

Boosting the weight in global indices enhances investment flows and increases institutional demand for the stock, which may support price stability and support available liquidity.

stc is an attractive option for long-term investment due to its leadership in the local telecommunications market and its expansion in information technology solutions (ITS) and digital services.

The government is keen on support the information and communications technology (ICT) market. Thus, stc's expansion in providing new digital solutions and increasing focus on the 5G infrastructure promote it to a worthy position to achieve sustainable growth.

Al Rajhi explained that increasing the free float means that more shares are now available for trading without restrictions. It widens the stock depth and provides investors with greater opportunities to buy larger volumes when needed, especially mega investment portfolios looking for long-term investments in leading and stable companies like stc.

PIF’s decision to sell 2% of stc shares to various categories of investors came to enlarge the free float volume.