BEYON

As I deepen my understanding of financial statement modeling, Beyon, a Bahrain-based technology group, offers a compelling case study. While its financials appear robust at first glance, I'm hesitant to invest due to concerns about market saturation, an M&A-heavy growth strategy, and leadership's ability to develop adjacent markets organically. Below, I analyze Beyon's financial performance using data from the 2024 Annual Report, evaluate its strategic initiatives, and explain why I'm choosing to pass on this opportunity.

Company Overview

Beyon, formerly Bahrain Telecommunications Company (Batelco), is headquartered in Manama and operates across 12 international markets, including Jordan, the Maldives, and the Channel Islands. The 2024 Annual Report underscores its evolution from a traditional telecom provider to a diversified tech group, with ventures in financial services, ICT solutions, cybersecurity, gov-tech, and ed-tech. Aligned with Bahrain's Vision 2030, Beyon aims to lead the Middle East's digital transformation. However, I'm concerned that its core telecom markets may be nearing saturation, limiting organic growth potential.

Financial Performance

Analyzing Beyon's financials is a key part of my learning journey, helping me practice interpreting income statements and assessing a company's health. Let's dive into the numbers.

Revenue and Profitability

• Revenue Growth: Beyon's revenue grew to BD 459,985,000 in 2024 from BD 424,904,000 in 2023, an 8.3% increase. This growth, driven by mobile telecommunications (BD 200,366,000 in 2023, with 2024 showing continued strength) and digital services, indicates Beyon's ability to generate demand. However, I worry this growth may slow as its core markets saturate.

• Profit Stability: Profit after tax increased to BD 84,887,000 in 2024 from BD 82,036,000 in 2023, with earnings per share (EPS) slightly up at 44.0 fils from 43.6 fils. This consistency is reassuring, but I'm not convinced it's enough to justify investment given my other concerns.

• Expense Growth: Total expenses rose to BD 350,488,000 in 2024 from BD 320,939,000 in 2023, a 9.21% increase. Breaking this down:

  • Network operating expenses: BD 150,040,000 to BD 165,825,000 (10.52%)
  • Staff costs: BD 55,518,000 to BD 60,577,000 (9.11%)
  • Depreciation, amortization, and impairment: BD 67,088,000 to BD 73,949,000 (10.23%)
  • Impairment losses on trade receivables: BD 1,877,000 to BD 3,063,000 (63.19%)
  • Other operating expenses: BD 46,416,000 to BD 47,074,000 (1.42%)

  While this expense growth is manageable, it reflects the costs of expansion, particularly through acquisitions, which I'll explore further.

Balance Sheet and Cash Flows

• Goodwill and Intangibles: Goodwill increased to BD 163,420,000 in 2024 from BD 137,775,000 in 2023, driven by acquisitions like Insomea and BTC Sure Group. Intangible assets grew to BD 107,385,000, showing heavy investment in acquired assets. This reinforces my concern about Beyon's reliance on M&A rather than organic growth.
• Investments: Beyon holds BD 280,570,000 in equity securities (e.g., Eshhad Atheeb Telecommunications Company) and BD 293,000,000 in debt securities, reflecting financial prudence. This is a positive, but it doesn't offset my broader concerns.
• Cash Flows: Operating cash flows are solid at BD 32,384,000, but investing activities consumed BD 42,507,000 due to infrastructure and acquisition spending. This cash flow profile supports Beyon's stability, yet I'm wary of the long-term sustainability of its growth strategy.

For a deeper valuation perspective, I'd refer to a DCF analysis, which provides insights into Beyon's future cash flows, but my primary concerns lie elsewhere.

Strategic Initiatives

Beyon's strategies highlight its ambition, but they also underscore the risks I'm concerned about as I evaluate its potential.

Digital Transformation

• AI and Digital Services: The launch of Basma, a generative AI-powered digital assistant, is a step toward innovation. While this aligns with tech trends, I'm unsure if Beyon can compete with global AI leaders in saturated markets.
• Beyon Digital City: The 380,000-square-meter smart city project in Hamala, Bahrain, set to start in 2025, aims to integrate digitization and sustainability. It's ambitious, but I question whether Beyon's leadership can execute it effectively without relying on external acquisitions.
• Digital Authentication: The introduction of eKey 2.0 supports Bahrain's digital infrastructure. This is a positive move, but I don't see it as a significant growth driver in a saturated market.

Acquisitions and Expansion

• Insomea Acquisition: Beyon acquired a 64% stake, adding BD 2,579,000 in goodwill, to enhance its digital capabilities. This is part of a broader M&A spree that worries me.
• BTC Sure Group: The acquisition of Guernsey Airtel Limited and Jersey Airtel Limited for BD 15,452,000 made Beyon the leading mobile provider in the Channel Islands. While this expands its footprint, I'm concerned it's a sign of growth through acquisition rather than organic innovation.
• New Entities: Establishing Digital City Development Company W.L.L. and Beyon Digital Holding Ltd. in Abu Dhabi shows regional ambition, but I doubt Beyon's leadership can organically develop these markets without further M&A.

Sustainability and Governance

• Sustainability: Beyon's launch of the region's first off-grid mobile site aligns with Bahrain's carbon neutrality goals by 2060. I appreciate this, but it doesn't address my core concerns about growth strategy.
• Corporate Governance: A diverse board and compliance with Bahrain's Corporate Governance Code are positives, yet I'm not convinced the leadership has the "hard qualities" needed for organic growth in new markets.

Why I'm Not Investing in Beyon

Despite Beyon's solid financials, I'm choosing not to invest for several reasons, which I've identified through my financial analysis:

1. Market Saturation and Pricing: I believe Beyon's core telecom markets are nearing saturation, limiting organic growth potential. The 8.3% revenue growth is decent, but I see it slowing as competition intensifies. Additionally, I think the market has priced Beyon fairly, leaving little upside for investors like me.
2. Reliance on M&A: Beyon's growth strategy heavily relies on acquisitions, as seen with Insomea and BTC Sure Group, which increased goodwill by BD 25,645,000 from 2023 to 2024. While this has expanded its footprint, I'm skeptical of this approach. I believe true growth comes from organic innovation, and I don't see Beyon's leadership demonstrating these "hard qualities" effectively.
3. Leadership Challenges: I doubt Beyon's leadership can establish adjacent markets organically. Expanding into new sectors like gov-tech or ed-tech requires deep internal expertise, and I'm not convinced Beyon has the capabilities to do this without further acquisitions, which could strain its balance sheet over time.
4. Financial Modeling Insight: As I model Beyon's financials, the 9.21% expense growth rate (from BD 320,939,000 to BD 350,488,000) is manageable, but the volatility in impairment losses (63.19% growth) signals potential risks. If I were to forecast, I'd use conservative assumptions, but my concerns about growth strategy outweigh the financial stability.

Competitive Landscape

I've assessed Beyon's position in a competitive environment, which reinforces my hesitation:

Beyon's regional focus and government backing are advantages, but its reliance on M&A and saturated markets make it less competitive against global players with stronger organic growth.

Conclusion

Beyon offers a valuable learning opportunity, but not an investment I'm ready to make. Its financials are solid, with BD 84,887,000 in profit after tax and a manageable 9.21% expense growth rate, which I can use to practice forecasting in my models. However, I'm concerned about market saturation, the leadership's M&A-driven growth strategy, and their ability to develop adjacent markets organically. I believe Beyon lacks the "hard qualities" needed for sustainable growth, and with the market pricing it fairly, I see limited upside. I'll continue to monitor Beyon as a case study for my learning, but for now, I'm passing on this investment to focus on opportunities with stronger organic growth potential.