FOCUS: Robust telecom, banking, retail expansion may push MTS’ results up

By Yekaterina Yezhova

MOSCOW, Aug 28 (PRIME) -- MTS has topped market expectations with its April–June financial results enhanced by the growth of telecom and banking services and resumed handset sales, which may point at solid performance in the future, analysts said.

“We find MTS’ results strong, they exceeded our expectations organically and thanks to a low comparison base of EBITDA. In addition to the connectivity segment, whose growth has accelerated, advertising and banking services were the key factors of revenue’s organic rise,” BCS World of Investment senior analyst Maria Sukhanova told PRIME.

The mobile operator’s revenue increased by 14.8% on the year to 146.7 billion rubles in April–June, including the Russian revenue that climbed by 14.5% to 144.3 billion rubles, “as a result of revenue of growth in the telecom, fintech, adtech, media, retail and other segments,” MTS said in its August 22 IFRS statement.

Cifra Broker’s analysts also said that MTS did better than expected. “The high revenue growth in April–June stems, among others, from recovered sales of phones, which rose by 26% on the year in comparison to a 23% decrease in January–March,” they said.

MTS said it downsized its Russian retail chain by 11.9% to 4,776 stores. “The retail chain, as we expect, will continue to demonstrate a stable increase of financial indicators in the second half of the year as well,” Veles Capital analyst Artyom Mikhailin said in a note.

The group net profit leaped by 53.5% to 16.8 billion rubles “driven primarily by the double-digit increase in OIBDA, lower interest expenses and a positive securities revaluation,” MTS said, adding that the weakening ruble restrained growth. Net debt narrowed by 0.7% to 416 billion rubles.

Group OIBDA increased by 22.9% to 63.7 billion rubles as MTS Bank’s provisions normalized and consumption of financial services increased. The Russian indicator advanced by 23.9% to 63.5 billion rubles.

“High growth rates were also demonstrated by the segments of the MTS ecosystem or the new business directions the company develops proactively – bank’s revenue jumped by 40.3% on the year, adtech increased by 46.4%, cloud and other services by 25.1%. It is thanks to these directions that MTS maintains double-digit growth of OIBDA,” Cifra Broker’s analysts told PRIME.

“The new businesses presently account for about 20% of MTS’ total revenue, but this share will only widen in the future, and the company will turn into a fast-evolving player of the technological industry to a greater extent than that of telecommunications.”

They added that the leading footing in the traditional segment of telecommunications helps MTS develop the new directions with the company’s client base counting 80.3 million subscribers.

“It contributes to a steady development of the MTS ecosystem, which, in its turn, helps it keep the current clients and attract new ones. In this context, we can no longer associate MTS with the telecommunications industry since the company’s future will depend on momentum of digital segments,” Cifra Broker’s analysts said.

Mikhailin at Veles Capital said that MTS’ business is sustainable and steadily generates cash flows that allows it to ensure a high return on investment.

“As to potential dividends, the company has not announced plans for the coming year. But the previous policy and its current results as well as a free cash flow allow us to assume that the company may pay dividends of 30 to 35 rubles per share next year,” Cifra Broker said.

MTS’ shareholders in June approved to pay 34.29 rubles per ordinary share, or 67.2 billion rubles in total in dividends on 2022 results.

The operator’s ordinary shares increased by 1.3% over the week and by 23.4% since the beginning of the year closing at 290.65 rubles on August 25 on the Moscow Exchange.

“We currently recommend buying MTS’ shares and are revising the earlier target of 300 rubles per share,” Cifra Broker’s analysts said.

Sukhanova at BCS sees a 12-month target at 340 rubles, the same as Mikhailin at Veles Capital, who has a Buy recommendation on the stock.

(94.7117 rubles – U.S. $1)

End