FOCUS: Investors happy to see Rostelecom results, divs still in question

By Yekaterina Yezhova

MOSCOW, Aug 14 (PRIME) -- Russia’s Rostelecom has broken an 18-month silence on its financial performance with a robust 8% rise in 2022 revenue meaning the firm may pay dividends, while analysts said the state-controlled telecom operator will focus on digital services.

“Rostelecom has demonstrated that a strategy based on the leading role in building the Russian digital economy is paying back, and sanctions have no negative impact on its operating or financial results,” investment company Finam analyst Leonid Delitsyn told PRIME.

The company’s ordinary shares became one of the gain leaders on the release day of August 3. The ordinary shares rose by 0.9% over the week and 37.4% since the beginning of the year closing at 76.89 rubles on August 11.

Delitsyn set the target at 75.2 rubles with a Hold recommendation, while BCS World of Investment has a Sell recommendation.

“The resumed IFRS disclosure is positive, and results are mainly proper. The growth of the 2022 net profit, in our view, brings us hope that we will see dividends at least flat on the previous year at 4.56 rubles with a 6% yield. But uncertainty remains: the board of directors has not given a dividend recommendation, while the annual general meeting of shareholders was delayed,” BCS World of Investment said in a note.

Rostelecom’s 2022 revenue rose to 627.1 billion rubles. The operator’s free cash flow rocketed by 39% to 45.2 billion rubles.

Alexei Pavlov, head of the market research department at Otkritie Investments, sees no significant driver in the stock, if there are no dividends.

“The company can pay dividends for 2022, but the decision rests with the major shareholder, the government,” Delitsyn at Finam said.

“The government understands the importance of dividends, but it also sees that to fulfil the social goals, like provision of remote regions with the Internet and others, the company inflates its credit burden, issues bonds. This is why there is no 100% certainty in the payment of dividends.”

The January–June net profit rose by 18% to 26.9 billion rubles on the year. Revenue grew by 15% to 324.5 billion rubles. OIBDA climbed 8% to 135.1 billion rubles, and the OIBDA margin lost 2.6 percentage points to 41.6%. Capital expenditures fell by 7% to 45.9 billion rubles. The net debt narrowed by 3% on the year to 471.7 billion rubles as of the end of June. The free cash flow advanced to 73.6 billion rubles from 15.1 billion rubles a year earlier.

Investment company Freedom Finance Global leading analyst Natalya Milchakova said the company’s growth of revenue and net profit, its high OIBDA margin, and the rocketing free cash flow are the company’s strong points.

“Besides, the company’s debt burden shrank, although it was not huge earlier, but thanks to the net debt’s contraction in absolute terms, the net debt to OIBDA ratio slipped to 1.8 from 2.7,” she told PRIME.

But the April–June net profit contracted by 24% on the year to 9.5 billion rubles. Revenue rose by 14% to 165 billion rubles. OIBDA fell by 1% to 63.3 billion rubles, and the OIBDA margin fell 5.8 percentage points to 38.4%. Capital expenditures rose by 7% to 27 billion rubles. The free cash flow doubled to 20.6 billion rubles from 9.8 billion rubles a year earlier.

Milchakova said the company’s growth relies on Internet services and advanced cloud computing services, which are highly popular among its clients.

“Rostelecom’s weak side is that the company is mature and will unlikely demonstrate very high growth rates. The company’s capital expenditures also declined, which, on the one hand, may mean future dividends on 2023 results, but, on the other hand, lower investment today may obstruct its progress in the future,” Milchakova said.

“We believe that in the next few years Rostelecom will put its stake on mobile connection, cloud technologies, digital TV, and other digital services to stay at least competitive, or be a step ahead of its rivals at the highest.”

Rostelecom’s management abstained from giving a 2023 guidance amid macroeconomic uncertainty.

(98.2066 rubles – U.S. $1)

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