stc group (7010)
7010 · Saudi Exchange (Tadawul) · Telecommunication Services · Reporting currency SAR · As of 7 August 2026
A dominant, sovereign controlled cash machine whose revenue keeps growing and whose margin keeps shrinking.
BUY trigger SAR 35.25, the fair value midpoint less a 15% margin of safety. Objective income with modest growth. Holding period three to five years. Allocation band 2% to 4% of a diversified equity portfolio with a 5% ceiling.
| Measure | Value | Measure | Value |
|---|---|---|---|
| Market capitalisation | SAR 216.9bn | Enterprise value | SAR 226.4bn |
| Shares outstanding | 5,000m | Free float | 38% |
| Controlling shareholder | PIF, 62% | Average daily value, 3M | SAR 103.6m |
| 52 week range | SAR 40.20 to 45.38 | Beta | 0.58 |
| Dividend yield, recurring | 5.07% | Trailing P/E | 14.8x |
| EV / EBITDA | 9.0x | Price / book | 2.6x |
| Net debt / EBITDA | 0.38x | Return on equity, 2025 | 17.8% |
| Credit ratings | Aa3 / A+ / A+ | Currency | SAR, pegged at 3.75 |
Sources: Argaam market data, Tier 3, 6 August 2026; stc H1 2026 results presentation and FY2025 announcement, Tier 1; Investing.com 52 week range, Tier 4, 29 July 2026. Multiples computed on the trailing twelve months to 30 June 2026.
Why this matters now
stc is the largest company in the Saudi telecommunications sector by a distance and one of the most widely held names on Tadawul, which means most people meet it through a headline dividend yield of 9.7%. That number is real and it is also misleading: it includes a SAR 2.00 special dividend paid in June 2025 out of the proceeds of selling the tower business to the company’s own controlling shareholder. The dividend an investor buying today can actually count on is SAR 0.55 a quarter, a yield of 5.07%, and the board has committed to it only through the third quarter of 2027.
Underneath that, a second gap matters more. Revenue has grown 23.5% since 2021 and EBITDA has grown 7.1%. Four consecutive years of margin decline is not a cycle, it is a deliberate shift of the growth engine into businesses that carry a fraction of the core margin. This note works out what that is worth.
Three reasons to buy
- A contracted dividend of SAR 0.55 a quarter to the third quarter of 2027, a 5.07% recurring yield backed by Aa3 and A+ credit ratings and net debt of just 0.38 times EBITDA.
- Structural dominance. stc generated SAR 11.58bn of the listed Saudi telecom sector’s SAR 14.46bn of combined net profit in the first nine months of 2025, roughly 80%, on 30.3m mobile customers.
- Efficiency is landing where it matters. First half gross margin rose 70 basis points to 49.0% and operating profit grew 7.8% on 3.8% revenue growth.
Three major risks
- EBITDA margin has fallen from 36.2% in 2021 to 31.4% in 2025 as growth shifts into low margin subsidiaries. Another 150 basis points costs roughly SAR 3.70 a share.
- The dividend policy expires after the third quarter of 2027. Capex intensity has already jumped from 9.4% to 11.9% and net debt from SAR 473m to SAR 9,534m in twelve months.
- PIF owns 62% and stood on both sides of the 2024 tower sale. Minority holders have no vote on transactions between the company and its own controlling owner.
What the business actually is
stc sells connectivity in Saudi Arabia and, increasingly, everything that sits on top of it. The core is a mobile and fixed network serving 30.3m mobile customers and 6.1m fixed subscribers in the Kingdom as at 30 June 2026, sold on monthly contracts to consumers and on multi year framework agreements to government bodies and large corporates. Around 74% of mobile customers are prepaid, which means most of the base can leave at any time and price is the main lever holding them.
Around that core sit the subsidiaries: solutions by stc in systems integration and managed IT, channels in device retail and distribution, center3 in data centres and subsea cable, sirar in cybersecurity, iot squared, and STC Bank, a licensed digital bank launched in January 2025 that has passed 8.5m customers. Together they accounted for 34.8% of group revenue in the first half of 2026.
Source: stc H1 2026 results presentation, pages 13 to 15. Tier 1. Subsidiary revenue derived as group revenue less stc KSA revenue.
Where the money comes from, and where the margin does not
This is the most important comparison in the note. The subsidiaries are now a third of the revenue line and a quarter of the gross profit line, and their share of gross profit was 18.8% only a year ago. Every riyal of growth they add dilutes the group margin, which is why revenue can rise 3.8% while the EBITDA margin sits almost five points below where it was in 2021.
Source: stc H1 2026 results presentation, pages 14 and 15. Tier 1. As at 30 June 2026.
| stc KSA revenue, SAR m | H1 2025 | H1 2026 | Change | What drives it |
|---|---|---|---|---|
| Commercial, consumer | 16,087 | 16,570 | +3.0% | Mobility +2.8%, fixed +3.9% |
| Business, enterprise | 6,905 | 7,050 | +2.1% | Private +4.3%, public +0.7% |
| Carrier and wholesale | 2,326 | 2,531 | +8.8% | National +11.8%, international +6.3% |
| stc KSA total | 25,319 | 26,150 | +3.3% | Broad but slow |
Source: stc H1 2026 results presentation, page 13. Tier 1.
Revenue character and customer concentration
The revenue is unusually dependable and unusually political at the same time. The public segment of the enterprise unit alone billed SAR 4,223m in the first half, and the group holds a SAR 32.64bn contract with a government entity to build and operate telecommunications infrastructure, signed in 2025. That single contract is roughly 42% of a full year of group revenue, spread over its life. It makes the top line visible. It also means the largest customer, the largest shareholder and the price regulator all answer to the same state.
| Measure | Value | A year earlier |
|---|---|---|
| Mobile customers, Saudi Arabia | 30.3m | 28.9m |
| Fixed subscribers | 6.1m | 5.9m |
| 5G population coverage | 64.0% | 59.4% |
| Fibre connections | 3.87m | 3.68m |
| stc tv subscribers | 6.34m | 5.39m |
| STC Bank customers | More than 8.5m | Launched January 2025 |
Source: stc H1 2026 results presentation, pages 7 and 8. Tier 1.
Competitive position and the shape of the moat
Market size and growth
Mordor Intelligence sizes the Saudi mobile operator market at USD 28.74bn in 2026, growing at a 6.57% compound rate to USD 39.51bn by 2031. Read that with care. Mobile connections already exceed 116% of the population, so subscriber growth is close to a zero sum contest between three operators, and the forecast rests on data consumption, enterprise digitisation and adjacent services rather than on new users. Technavio puts recent growth in the Saudi telecom market at 2.4%, which is nearer to the 3.3% stc KSA actually delivered in the first half of 2026.
| Company | Market | Market cap, USD bn | FY2025 revenue, USD bn | EBITDA margin | Dividend yield |
|---|---|---|---|---|---|
| stc group | Tadawul | 57.8 | 20.75 | 31.4% | 5.07% |
| Mobily | Tadawul | 13.02 | 5.24 | 36.1% | 4.35% |
| Zain KSA | Tadawul | 2.45 | 2.93 | 32.0% | 4.89% |
| Ooredoo | Qatar Exchange | 11.95 | 6.76 | 42.7% | 5.97% |
| Zain Group | Boursa Kuwait | 6.80 | 7.44 | 34.0% | 7.32% |
Revenue and margins from each company's own FY2025 results release, Tier 1. Market capitalisations and yields from Argaam, stockanalysis.com, Investing.com and Simply Wall St, Tier 3 and Tier 4, dated 21 May to 6 August 2026. Converted at SAR 3.75, QAR 3.64 and KWD 0.309 to the dollar.
On revenue stc KSA is roughly two and a half times Mobily and nearly five times Zain KSA, and the profit gap is wider still. Note also that Mobily earns a higher EBITDA margin than stc on roughly a quarter of the revenue. Scale is not translating into superior profitability, which is a genuine mark against the moat.
Barriers to entry
High and durable. Spectrum is allocated by auction, the network absorbs SAR 11bn to 12bn a year, and 12,120 5G sites and 3.87m fibre connections are not replicable quickly. The binding constraint on a new entrant is spectrum, and the Communications, Space and Technology Commission has kept the licensed pool with the three incumbents, expanding it from 1,110 MHz to 1,400 MHz at the November 2024 auction across the 600, 700 and 3800 MHz bands. Four licensed mobile virtual network operators also trade in the market, per BuddeComm, on capacity bought from those three.
Pricing power, tested rather than asserted
The test is whether stc has raised price through a cost cycle and kept the margin. It has not. Mobility revenue grew 2.8% in the first half of 2026 while the customer base grew 4.8%, which means revenue per customer fell. Group gross margin has gone from 55.5% in 2022 to 48.4% in 2025. A business with real pricing power does not show that pattern. What stc has instead is volume durability and cost discipline, which is a different and less valuable thing.
Regulation and disruption
The CST licenses spectrum, sets quality standards and governs competition, and has been a constructive regulator, releasing capacity ahead of demand and publishing a Spectrum Outlook to 2027. The exposure is asymmetric rather than acute: an incumbent that is 62% state owned is unlikely to be treated harshly, but any move toward open access fibre or wholesale price control would compress the most profitable part of the group. On disruption, direct satellite to mobile is the live threat and stc has chosen to own it rather than fight it, signing AST SpaceMobile with commercial launch guided for the fourth quarter of 2026. The larger structural threat is the hyperscalers: AWS, Oracle and Google are simultaneously stc’s partners and the eventual owners of the enterprise cloud spend that solutions by stc is chasing.
The mechanism is regulatory licence and scale economics in the access network, not brand or switching costs. It is narrow rather than wide because the one test that would prove a wide moat, sustained pricing power through a cost cycle, is failed by five straight years of margin decline, and because a smaller competitor earns a higher EBITDA margin on the same regulatory footing.
Financial performance and the quality behind it
| SAR m | 2021 | 2022 | 2023 | 2024 | 2025 | 2026E | 2027E |
|---|---|---|---|---|---|---|---|
| Revenue | 63,008 | 67,432 | 72,337 | 75,893 | 77,819 | 80,600 | 83,020 |
| Gross profit | 33,794 | 37,393 | 37,804 | 37,326 | 37,700 | 39,490 | 40,680 |
| Gross margin | 53.6% | 55.5% | 52.3% | 49.2% | 48.4% | 49.0% | 49.0% |
| EBITDA | 22,841 | 25,079 | 24,683 | 23,951 | 24,469 | 25,630 | 26,230 |
| EBITDA margin | 36.2% | 37.2% | 34.1% | 31.6% | 31.4% | 31.8% | 31.6% |
| Net profit | 11,311 | 12,171 | 13,295 | 24,689 | 14,828 | 14,500 | 14,840 |
| EPS, SAR | 2.27 | 2.44 | 2.67 | 4.95 | 2.97 | 2.91 | 2.97 |
Source: stc annual results announcements 2022 to 2026, Tier 1, and the Saudi Exchange disclosure of 17 February 2026, Tier 2. The 2023 EPS is derived as net profit divided by the weighted average share count. Columns marked E are our estimates, not company guidance. The assumptions behind them are in section 06.
Source: stc annual results announcements, Tier 1. 2026E and 2027E are our estimates. EBITDA has grown 7.1% in four years while revenue has grown 23.5%.
Quality of growth
Revenue is up 23.5% since 2021. EBITDA is up 7.1%. That gap is the whole question, and the answer is mix, not price and not volume. Growth has come from three places and each is worth less than the core it is diluting. Wholesale grew 10.8% in 2025 on a 32.6% jump in the national segment, which is capacity resale at thin margin. The subsidiaries grew into a third of revenue but only a quarter of gross profit. And the enterprise unit’s public segment, the highest visibility revenue in the group, actually shrank 3.4% in 2025.
Some of it is genuinely bought rather than earned. solutions by stc acquired Giza Systems and Contact Centers Company, and the group has spent through Tali Ventures and center3. Acquired revenue at a lower margin deserves a lower multiple than organic revenue at the group margin, and the market has been applying exactly that discount.
Quality of earnings
Reported profit has been noisy in both directions and the noise flatters the recent trend. 2024 carried SAR 13,973m of gains on the sale of TAWAL and Digital Infrastructure Company, and a SAR 1,500m withholding tax provision reversed through cost of revenues, offset by a SAR 764m impairment on the BGSM associate. 2025 carried a positive zakat and income tax line of SAR 466m from reversing prior year provisions, and early retirement costs SAR 1,753m lower than the year before. Strip those out and 2025 underlying profit grew 12.5%, which is the number to use.
The first half of 2026 shows the reverse. Zakat swung to a SAR 201m charge from a SAR 526m credit, so reported profit fell 2.1% while underlying profit rose 6.3%. Free cash flow of SAR 3,568m against net profit of SAR 7,319m is a conversion of 49%, which is thin and is the direct consequence of capex intensity rising to 11.9%.
| SAR m | H1 2025 | H1 2026 | Change |
|---|---|---|---|
| Revenue | 38,660 | 40,110 | +3.8% |
| Gross profit | 18,658 | 19,637 | +5.3% |
| EBITDA | 12,289 | 12,968 | +5.5% |
| Operating profit | 7,207 | 7,771 | +7.8% |
| Net profit, reported | 7,472 | 7,319 | −2.1% |
| Net profit, excluding one off items | As reported | As reported | +6.3% |
| Capital expenditure | 3,644 | 4,773 | +31.0% |
| Free cash flow | 979 | 3,568 | +264.5% |
Source: stc H1 2026 results presentation, pages 3 to 5. Tier 1. The underlying growth figure is the company's own disclosure.
Balance sheet, cash generation and what reaches the holder
Debt, ratings and the sukuk
The balance sheet is the strongest part of the investment case and it has just started to move. Net debt went from SAR 473m at 30 June 2025 to SAR 9,534m at 30 June 2026, driven by a USD 2bn sukuk issued in two tranches: USD 750m of five year paper at US Treasuries plus 75 basis points and USD 1,250m of ten year paper at Treasuries plus 90 basis points. The order book exceeded USD 8bn from more than 300 investors, over four times covered. At a ten year Treasury yield of 4.60% that implies a marginal cost of long debt around 5.5%.
Even after the raise, leverage is 0.38 times EBITDA and interest cover is 10.9 times, down from 12.8 times at the end of 2025. Moody’s rates the group Aa3, S&P and Fitch A+, and Tassnief AAA. The debt is dollar denominated against riyal revenue, which under the 3.75 peg is a policy risk rather than a currency risk, but it is not a zero risk.
| Measure | Trailing twelve months | Stress case | Verdict |
|---|---|---|---|
| EBITDA | SAR 25,148m | SAR 20,000m | An 18% fall, below anything in five years |
| Net debt | SAR 9,534m | SAR 9,534m | Unchanged |
| Net debt / EBITDA | 0.38x | 0.48x | Still negligible leverage |
| Interest cover | 10.9x | Above 8x | No solvency question arises |
Source: stc H1 2026 results presentation, pages 5 and 19, Tier 1. The stress case is our estimate. There is no plausible operating downturn in which stc cannot service its debt; the stress that matters is the dividend, and that is a choice rather than a constraint.
Free cash flow and what the dividend actually costs
Capex rose 31% year on year to SAR 4,773m in the first half of 2026, lifting capex intensity from 9.4% to 11.9%. Free cash flow still improved sharply to SAR 3,568m from SAR 979m. Annualise that and stc generates roughly SAR 7bn of free cash flow against an ordinary dividend of SAR 11.0bn. The gap is currently bridged by the balance sheet and by the proceeds of the tower sale. That is sustainable for a while at 0.38 times leverage. It is not sustainable forever, and it is the single most important thing to monitor.
| Measure | SAR m | Basis |
|---|---|---|
| Ordinary dividends declared | 10,980 | SAR 0.55 a quarter on 4.99bn eligible shares |
| Net profit attributable | 14,828 | Reported |
| Payout on ordinary dividends | 74.0% | Comfortable |
| Total cash distributed during 2025 | 20,950 | Includes the SAR 2.00 special paid June 2025 |
| Payout on cash distributed | 141.4% | The company's own stated figure |
| Total equity, 31 December 2025 | 83,414 | Down 6.7% year on year |
Sources: stc FY2025 results presentation page 2, Tier 1; Saudi Exchange annual disclosure of 17 February 2026, Tier 2. Equity fell because distributions exceeded earnings.
Source: stc dividend announcements, Tier 1. The 2023 and 2024 figures include specials of SAR 1.00 and SAR 2.00 respectively. 2026E and 2027E are the board's stated policy of SAR 0.55 a quarter, which runs to the third quarter of 2027.
Share count and dilution
There is effectively none, and that is worth saying plainly because it is rare. The share count has been fixed at 5,000m since the 2022 capitalisation of SAR 30bn of retained earnings into a 1.5 for 1 bonus issue. Treasury shares held against the employee stock incentive plan stood at 10.2m at the end of 2025, 0.2% of capital, and a further 26m shares were approved for repurchase for the plan in May 2026. Per share earnings therefore track group earnings almost exactly, which is not true of most telecom operators.
Management, governance and capital allocation
Ownership and control
The Public Investment Fund holds 62% of stc and 38% is free float. There is a single share class and one vote per share, so control and economic ownership are aligned in form. In substance a 62% holder decides every ordinary resolution, and a minority shareholder’s role is to receive the dividend the controller sets. That is not automatically bad. A sovereign controller has delivered a rising, contracted dividend, an Aa3 rating and a strategic pipeline no minority owned operator could fund. But the interests are not identical: PIF is a fiscal instrument with liquidity needs of its own, and the capital it wants stc to deploy serves Vision 2030 as much as it serves the return on each share.
| Holder | Stake | What it means for a minority holder |
|---|---|---|
| Public Investment Fund | 62% | Carries every ordinary resolution alone. Sets the dividend policy |
| Free float | 38% | Roughly SAR 82bn of tradable stock, which is why liquidity is not a constraint |
| Treasury shares | 0.2% | 10.2m shares held against the employee incentive plan at 31 December 2025 |
Source: stc investor relations ownership disclosure, Tier 1, as at 6 August 2026; treasury holding from the Saudi Exchange annual disclosure of 17 February 2026, Tier 2.
Related party transactions, the one that matters
In April 2024 PIF agreed to acquire stc’s 51% stake in Telecommunications Towers Company (TAWAL) and Digital Infrastructure Company for SAR 8.7bn, with TAWAL valued at SAR 21.94bn. stc booked SAR 13,973m of gain, which is what made 2024 net profit SAR 24,689m and made 2025 look like a 39.9% collapse. Read it plainly: the controlling shareholder bought assets from the company it controls, and the resulting accounting gain then funded a SAR 2.00 special dividend paid in June 2025, 62% of which went straight back to the buyer.
We are not alleging the price was wrong. The disclosed valuation is defensible against tower company comparables. The governance point stands regardless: minorities had no independent say in a transaction between the company and its own controlling owner, and this is a structure that can be used again.
| Where the capital went | What it bought | Verdict |
|---|---|---|
| Network capex | 12,120 5G sites, 64% population coverage, 3.87m fibre connections | Necessary and well executed |
| Acquisitions through solutions | Giza Systems, Contact Centers Company | Added revenue at below group margin |
| Disposal of TAWAL and DIIC | SAR 8.7bn from PIF, SAR 13,973m book gain | Crystallised value, related party |
| Distributions | SAR 20.95bn paid during 2025 | Exceeded earnings, equity fell 6.7% |
| center3 and STC Bank | SAR 37.5bn planned to reach 1GW by 2030, 8.5m bank customers | Unproven, the real swing factor |
Sources: stc FY2025 and H1 2026 results presentations, Tier 1; AGBI reporting on the PIF tower transaction, Tier 3, February 2026.
Track record against what management said
The Group Efficiency Program launched in 2024 is the clearest promise to test, and it is delivering on its own terms. Gross margin rose 70 basis points in the first half of 2026, operating margin rose from 18.6% to 19.4%, and operating profit grew twice as fast as revenue. The dividend policy announced in August 2024 has been paid to the riyal for seven consecutive quarters. Against that, the HUMAIN joint venture for AI data centres, announced as a landmark in 2025, had its memorandum extended by six months in the second quarter of 2026 because negotiations and regulatory approvals were not complete. Announced early, closed late.
On audit and disclosure, the auditors issued an unmodified opinion on the 2025 consolidated financial statements, with an Other Matter paragraph relating to the prior year comparatives. English disclosure is complete, timely and among the best on Tadawul. The MSCI ESG rating was upgraded from BBB to AA during 2025.
Published on 7 August 2026 and reflects public information to that date. Prices, ratings and estimates are as of the Tadawul close of 6 August 2026 and will change.
This document is independent research prepared for informational purposes. It is not investment advice, not a recommendation to buy or sell any security, and does not constitute an offer or solicitation. Figures are drawn from public sources believed reliable as of the date shown and may change without notice. Anyone acting on this material does so at their own risk and should seek their own professional advice.