FOCUS: Rostelecom, VK may win from current situation with quotes to rise

By Yekaterina Yezhova

MOSCOW, Apr 4 (PRIME) -- The unprecedented geopolitical situation, which kept the Russian stock market closed for almost entire March, could yet benefit the quotes of telecom operator Rostelecom and Internet company VK that are substituting foreign technologies and online projects.

“State-controlled Rostelecom can be called one of the beneficiaries of foreign technologies substitution in Russia. Worsening of relations with the foreign partners means that digitalization will have to be done mainly on our own. It means a chance to finance new government projects on Rostelecom’s base,” investment company BCS World of Investment stock market expert Dmitry Puchkaryov told PRIME. 

“Thanks to its affiliation with the government, investor confidence in the company’s resilience to new challenges is higher than in private MTS.”

Rostelecom’s ordinary shares lost 23.6% in January–March, closing at 66.6 rubles on the Moscow Exchange at the end of the quarter.

Investment company Finam analyst Leonid Delitsyn said Rostelecom enjoys many advantages in comparison to its peers. “It has experience of work under sanctions. For example, all its loans were borrowed from Russian banks. Many small and medium-sized businesses dreamed during hard times of selling their firms to Rostelecom or at least partnering it,” he said.

“This means that the company now has a good choice, and its President Mikhail Oseyevsky has already said that the market will consolidate. Rostelecom will act as a buyer and will strike deals at the best price. It means that all the company’s plans to grow the market share, in all sectors – business-to-business, business-to-customer, and business-to-government – will be fulfilled.”

MTS’ ordinary shares decreased by 20.1% since the beginning of the year and closed the March 31 session at 238.65 rubles.

“MTS was about to release its new dividend policy this spring. It has not happened yet, but the Digital Development Ministry has already recommended the operators cut unlimited tariffs. Investors conclude that the ministry does not expect the operators to have a profit. When there’s no profit, there’s no dividend. This is why the investors who are only interested in dividends and who kept the operators’ shares for this reason are selling them. MTS’ quotes fell to 174 rubles from about 300 rubles at the beginning of the year,” Delitsyn said, adding that Rostelecom’s shareholders are not so sensitive about dividends.

The shares of VEON, the sole owner of mobile operator VimpelCom, working under the Beeline brand, lost 23.9% to 97.75 rubles on March 31, below a two-year low, Delitsyn said, adding that the company needs a new strategy.

“The problem has re-emerged that competition on the Russian mobile connection market has become too stiff, and the weakest player may quit the battle. Unless the operator’s strategy is clear, its quotes won’t rise,” the Finam analyst told PRIME.

Internet company VK’s receipts fell 35% in January–March to 567 rubles on March 31. “The company wins from blocking of some social networks in Russia, which will bring it a flow of users, higher traffic and incomes from advertising. Besides, the surge of users of (VK’s social networks) Odnoklassniki and VKontakte will also boost other services of the company’s ecosystem,” Puchkaryov at BCS said.

Yandex’s shares nosedived by 50% in January–March, closing at 2,259 rubles on March 31.

Delitsyn at Finam said investors have confidence in the company regardless of the upcoming reduction of development programs. “The prices have just rolled back three years, after which we saw a boom. Of course, they’ve become cheaper, but that is not the end of the world,” he said.

“In the short-term, the quotes will be guided by the geopolitical factor. They will fall in case of escalation. When the current tough period ends, they will start recovering gradually,” the Finam analyst said.

(83.4285 rubles – U.S. $1)

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