FOCUS: Rostelecom 2020 quotes jump on M&A, MTS firms on divs, Yandex may rise further

By Yekaterina Yezhova

MOSCOW, Dec 28 (PRIME) -- The Moscow Exchange’s telecoms index rose by 6.1% in 2020 mostly thanks to robust performance of Rostelecom on the back of acquisition of Tele2 and other firms, while MTS is mainly a dividend-paying stock, analysts said, adding that Yandex still has growth potential.

“The telecom companies managed to maintain the financial results, which is advantageous compared to the other industries,” investment company IC RUSS-INVEST analyst Dmitry Bedenkov told PRIME

He added that the lockdown boosted services and raised the companies’ revenue.

MTS’ ordinary shares accounted for 72.72% of the telecom index weight on December 24, Rostelecom’s ordinary shares for 22.30%, its preferred shares for 2.99%, and the preferred shares of MGTS, controlled by MTS, for 1.99%.

MTS

Ordinary shares of the country’s major mobile operator rose by 2.6% since the beginning of the year to 328.40 rubles on December 25.

“MTS’ business is mature and stable, keeping its firm footing during the pandemic, when people meet less face-to-face, and demand for telecoms services soared. In normal economic situations, MTS’ shares are seen by investors as a dividend-paying stock, not like a story of a long-term large-scale rise,” investment company Algo Capital senior risk manager Vitaly Manzhos said.

“Regular payments of quite high interim dividends is an upside of these securities, but it is also the reason of their stable price.”

The company paid 29.5 rubles in dividends on the 2020 results, which means a yield of almost 9% to the current prices, Bedenkov said.

MTS’ American depositary receipts (ADRs) with underlying two ordinary shares decreased by 12.5% in 2020 to U.S. $8.88 on December 24 on the New York Stock Exchange, the same as the ordinary stock taking the exchange rates into account.

“In January–June 2021, MTS’ shares would most likely consolidate at 310–350 rubles with a gradual movement toward the upper level. Regular ex-dividend dates will push the quotes down,” Manzhos said.

Rostelecom

The ordinary shares of the state-controlled telecom operator, now with mobile operator Tele2 on board, rocketed by 21.2% in 2020 to 95.01 rubles on December 25. Bedenkov said the company’s 2020 dividend stood at 5 rubles with a yield of 5–6%.

Full consolidation of Tele2 is the key prerequisite for the mid-term growth, Manzhos said.

“In a broader sense, Rostelecom rises and improves effectiveness thanks to regular acquisitions of smaller players. We should admit it is a wise strategy for such a large company with state participation,” the Algo Capital analyst said.

“For example, Rostelecom signed a deal in November to get control of the telecoms business of oil major Lukoil and acquired Sozvezdiye N, the parent firm of Planeta Group, a leading Internet provider in Yekaterinburg and the Sverdlovsk Region, in December.”

Investment company Aton said in a research note that Rostelecom continues strategic acquisitions and expects quick synergy effects.

Manzhos said a strong rise in Rostelecom’s quotes in January–June 2021 look unlikely with the most probable trading range of 85–105 rubles. “The past years’ experience shows that these stocks may again fail to fulfill its growth potential in the mid-term,” he told PRIME.

“We should remember that providers of traditional telecommunications services did not win as much during the pandemic as it seemed at first. It becomes clear that expanding demand for connection services is met by more advanced IT services, like social networks.”

Yandex

The Internet company’s shares skyrocketed by 87.2% since the beginning of the year to 5,049.80 rubles on December 25 on the Moscow Exchange. Its ADRs jumped by 55.6% in 2020 to $67.65 on December 24 on the Nasdaq.

“It used to be the only paper of a large industry representative, which could have been bought for rubles until recently – this is why there was such a high past interest in Yandex’s shares on the Moscow Exchange. Now it has to compete with the securities of Mail.ru Group and a range of U.S. IT players,” Manzhos said.

“Investors and speculators were also deeply disappointed with the unexpected failure of an acquisition of TCS Group with its main asset Tinkoff Bank. As we see, growth of Yandex’s shares turned gradually into consolidation at 5,000 rubles in October–December.”

However, Yandex’s shares keep potential for a strong rise in several years as the business expands fast and diversifies quickly.

“In the mid-term, they often move sporadically on unexpected corporate news. This is why one should not forecast dynamics of Yandex’s shares judging only by its financial reports. On the whole, the outlook is positive, but it does not mean that the stocks will rise steadily and firmly as we should keep in mind country and regulatory risks,” Manzhos told PRIME.

Mail.ru Group

Traded on the Moscow Exchange since July, the Internet company’s receipts increased by 21.5% since then to 2,024.80 rubles on December 25. Its global depositary receipts advanced by 18.8% since the beginning of the year to $26.50 on December 24 on the London Stock Exchange.

“The main advantage of Mail.ru’s receipts is that they are issued by a player of a promising growing industry. However, it cannot help but make us wary that the receipts traded in 2020 at much lower levels than in 2011–2014. Technically, they would suit mid-term speculations than investment,” Manzhos said.

(73.6921 rubles – U.S. $1)

End