FOCUS: Investors like MTS for divs, strategy in 2019, Rostelecom’s star may rise in 2020

By Yekaterina Yezhova

MOSCOW, Dec 30 (PRIME) -- Robust price growth of dividend-generous MTS pushed Russia’s telecom stock index up 28% in 2019, but analysts say investors may focus on state-controlled Rostelecom next year as it gets full control over Tele2 and if the government invests more in the digital economy.

Ordinary shares of MTS contributed 77.52% to the telecom index’s weight as of December 26, and those of Rostelecom 17.55%. Preferred shares of Rostelecom accounted for 2.72% of the indicator’s weight and those of Moscow City Telephone Network (MGTS), a unit of MTS, for 2.21%.

MTS

The ordinary shares of the country’s major mobile operator jumped 34.5% over the year to 320 rubles on December 27 on the Moscow Exchange.

“A high dividend yield is the main factor to buy MTS stocks. The operator intends to pay dividends of 28 rubles per share. The dividends may be even higher and should the market turn enthusiastic, the stock will rise,” group of companies Finam analyst Leonid Delitsyn told PRIME.

Investment company Veles Capital analyst Artyom Mikhailin said the end of the year was good for MTS. The management board and shareholders decided not to revise the listing structure, which was welcomed by the market and curbed down risks.

“The company also disclosed robust results for July–September and said it would sell its business in Ukraine, which will result in payment of special dividends. MTS’ dividend yield for the next 12 months with the special payment included will be about 13% at current prices,” he said.

“MTS’ management did not rule out a new buyback in the future. The company keeps its leading position on the market and ensures a high return on investment, which enhances interest to the operator’s stocks,” Mikhailin said.

MTS’ American depositary receipts (ADRs) ascended 45.9% in 2019 to U.S. $10.24 on December 26 on the New York Stock Exchange. “The receipts advanced more than ordinary shares as the ruble rate had firmed,” Mikhailin said.

Delitsyn at Finam said large foreign investors buy stocks of emerging markets to diversify their portfolios and are guided by analyst recommendations. “Half of analysts recommend buying MTS’ securities, and the rest say to hold them,” he said.

“But the average fair value is about the same as the market price, and analysts don’t see any great growth potential, and we should not expect a quick rise of the stock next year.”

Rostelecom

The main 2019 event for Rostelecom, whose ordinary shares rose 8.1% over the year to 78.99 rubles on December 27 on the Moscow Exchange, has become consolidation of one of the country’s top mobile operators, T2 RTK Holding, working under brand Tele2.

In 2020, the state-controlled operator will start disclosing consolidated results, comprising Tele2, and will elaborate a new strategy, Mikhailin said.

“Rostelecom is entering an interesting phase when digital and content services already account for some 60% of revenue, and consolidation of Tele2 will help it yield extra advantages later. We should not forget that VTB Bank agreed to buy Rostelecom’s additional issue at 93.21 rubles per share, which is strongly above the market,” the Veles Capital analyst told PRIME.

“It’s possible that in 2020 investors will gradually start adding the value of Tele2 into Rostelecom’s shares, which will boost its quotes. As to dividends, we think Rostelecom would pay about 5 rubles per ordinary and preferred share for 2019 in one payment with a yield of about 6.3% and 7.2% respectively. We are yet to see whether the operator would revise its dividend policy.”

Delitsyn at Finam said that Rostelecom is the company that will profit most from the country’s course to build a digital economy.

“The stock market is quite skeptical about the e-economy idea and prefer dividends, whose prospects could be marred by the acquisition of the debt-laden mobile operator. This is why Rostelecom’s strategic victories did not raise its quotes a lot,” the analyst said.

“But if the government proves its intention to develop high-tech, Rostelecom could take advantage of several channels of increasing revenue, such as mobile and fixed access to the Internet, system integration, data storage and information security. The company’s shares may gain 20–25% in 2020.”

(62.0315 rubles – U.S. $1)

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