FOCUS: Robust results may make MTS, Yandex, VK gain leaders in 2023

By Yekaterina Yezhova

MOSCOW, Jan 9 (PRIME) -- Business stability and cash flows kept MTS and Rostelecom’s quotes from a plunge in 2022, and analysts think MTS, Yandex, and VK may become the gain leaders in the coming year thanks to strong financials and high-tech progress.

“Investors see Yandex, VK, and MTS as growth companies against the background of their high-tech solutions, a well-branched ecosystem, and intense development,” investment company Freedom Finance Global analyst Vladimir Chernov told PRIME.

“In 2023, Yandex, VK, and MTS could become the growth leaders of the Russian stock market thanks to strong financial results and high-tech progress, but we do not expect recovery of their quotes to the early 2022 level because investors opt for risk-free assets with a fixed yield rather than growth stocks in an economic crisis.”

Chernov expects Yandex, VK, and MTS’ quotes to consolidate in January–June 2023 and rise by some 10% in the second half of the year.

In 2022, the telecom companies demonstrated business sustainability and cash flows. “One of the operators’ main problem is the lack of equipment as the largest foreign vendors left the country, though it will impact the quality of networks much later,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

“Thus, the operators can hike tariffs and have a safety margin in the network capacity that enables them to earn and even distribute cash in dividends.”

Rostelecom’s ordinary shares decreased by 35.8% in 2022 closing at 55.98 rubles on the Moscow Exchange on December 30, and mobile operator MTS’ ordinary shares fell by 21.1% to 235.60 rubles, while the bourse’s broad MOEX Russia Index dove by 43.1% over the year.

MTS’ performance was better because the company paid generous dividends, and its investors may count on payments in 2023 as well. Its business margin and cash flows stay high, Mikhailin said, adding that the situation with Rostelecom is more complicated because the company decided to keep mum on its results.

Rostelecom President Mikhail Oseyevsky said on December 27 that the operator will not disclose its financial reports as long as the country is under Western sanctions.

VEON’s ordinary shares nosedived by 77.6% over the year closing at 28.8 rubles. “There is much uncertainty around VEON because it is selling its Russian business (mobile operator VimpelCom). After the deal, the company will lose half of its revenue and EBITDA and the main generator of cash flows. Other businesses, including in Ukraine, could have hard times that makes life for the holding company harder,” Mikhailin said.

“Among the advantages, the sale will reduce the sanctions risks and the debt burden. Since the Russian business is sold to the local management, it will be possible for VEON to get it back when the circumstances improve.”

Chernov at Freedom Finance Global said that VEON will find it hard in 2023 to recover from the fall, especially amid the external restrictions on the delivery of telecom equipment. “We do not expect the company’s stock to regain value on the Russian stock market in January–June 2023,” he told PRIME.

Internet companies VK and Yandex are overhauling the business to fit the new reality. VK’s depositary receipts lost 50% to 436.40 rubles and Yandex’s ordinary shares tumbled 59.8% to 1,816 rubles.

“VK managed to exploit the external pressure to expand its presence on the home market as a high-tech company. In September, VK became the single operator of Russia’s official analogue of Google Play, RuStore, launched a unified advertising platform and gaming applications. On the whole, it became one of the high-tech leaders in the country in 2022,” Chernov said.

“Investors see chances of a further progressive rise of the company in the absence of foreign rivals and mounting demand for development on the internal market.”

Mikhailin at Veles Capital said VK now focuses on advertising and has strengthened it with the acquisition of infotainment service Zen, which it bought from Yandex together with news aggregator News in exchange for delivery service Delivery Club. However, VK withdrew from some businesses, including games developer MY.GAMES and O2O, a joint venture with bank Sber.

For Yandex, the main 2022 events include the swap of Zen and News for Delivery Club and the restructuring announced by its Dutch parent company Yandex N.V. to split its Russian and foreign businesses.

“Yandex’s footing is stable, but some of its businesses, like car sharing or Auto.ru, have problems. Nevertheless, the company is also in the zone of high uncertainty unless final parameters of its reorganization are announced,” Mikhailin said.

Chernov does not expect the stock to recover dramatically at the beginning of 2023 “because of an outflow of foreign capital, problems with exports of equipment and components and the overall complicated economic situation in the country.”

“In July–December 2023, the situation may change should the geopolitical risks and the external pressure ease. It looks unlikely so far yet even the start of peace talks or simply of negotiations would push the Russian stock market upwards, and Yandex may become the growth bellwether,” the analyst told PRIME.

(70.3375 rubles – U.S. $1)

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