FOCUS: Rostelecom leads Russia’s TMT sector thanks to digital, mobile success

By Yekaterina Yezhova

MOSCOW, Mar 15 (PRIME) -- With a 2020 revenue exceeding half a trillion rubles, Rostelecom has become the largest company of Russia’s technology, media, and telecom sector thanks to its soaring digital and mobile businesses, and the market is looking forward to seeing its development strategy in April.

“The acquisition of mobile operator Tele2 played the key role in Rostelecom’s joining the super heavyweight league. Rostelecom focuses on expansion of businesses growing above the market – cybersecurity, big data, video surveillance analytics, and the electronic government,” investment company Finam analyst Leonid Delitsyn told PRIME.

“If the operator lacks the necessary competences, it obtains them through acquisitions of technological firms. Next year the company will be able to demonstrate a significant share of the market in the chosen IT segments.”

Rostelecom’s revenue increased by 23% on the year to 163 billion rubles in October–December 2020. Digital revenue skyrocketed by 53% to 30.4 billion rubles and mobile revenue rose by 15% to 47.3 billion rubles. Broadband revenue rose by 8% to 23.6 billion rubles. Fixed telephony revenue decreased by 10% to 13.4 billion rubles. OIBDA added 10% to 44.5 billion rubles, and capex, excluding state programs, shrank by 16% to 36.2 billion rubles.

In 2020, revenue increased by 15% to 546.9 billion rubles. Digital revenue jumped by 59% to 77.3 billion rubles and mobile revenue rose by 15% to 177 billion rubles. Broadband revenue added 7% to 90.4 billion rubles, and fixed telephony revenue fell by 10% to 54.6 billion rubles. OIBDA grew 14% to 194.1 billion rubles, and capex, excluding state programs, went up 1% to 107.1 billion rubles.

Revenue topped that of the country’s major mobile operator MTS, whose October–December revenue rose by 7.4% to 133.7 billion rubles and the 2020 revenue grew by 5.2% to 494.9 billion rubles. Yandex also lagged behind with the quarterly revenue of 71.6 billion rubles, up 39%, and the 2020 revenue of 218.3 billion rubles, up 24%. Delitsyn said it could take the Internet company three years to get the same revenue as Rostelecom.

Rostelecom’s digital business with the highest revenue growth “was mainly boosted by growth in regional digital projects, rising demand for digital platforms in healthcare, public administration and elections, and promotion of the cloud and cybersecurity services,” Sberbank CIB said in a note.

“Traffic on the mobile networks of Rostelecom, Tele2, and partners soared by 48% in October–December with the client base staying almost flat,” Georgy Vashchenko, head of trading operations on the domestic stock market at investment company Freedom Finance, said.

Rostelecom said it expects its 2021 consolidated revenue and OIBDA to increase by at least 5% each with capex ranging from 110 billion to 115 billion rubles. Vashchenko puts the 2021 revenue at 604.2 billion rubles. He said that the company’s plan to pay a dividend of 5 rubles per share is above his expectations. Sberbank CIB valued the yield at 4.7%.

The operator’s CEO Mikhail Oseyevsky said at a conference call that Rostelecom’s management will unveil a draft development strategy, now at a final stage of wording, to the board of directors in April.

“We believe the key factors to watch out for now are the timing of the updated strategy and recovery of free cash flow,” Sberbank CIB.

Broker Xtellus Capital Partners equities analyst Ivan Kim thinks the April strategy update is the key catalyst for the stock. “While we expect the high capex cycle to continue, we also think it is important for Rostelecom’s investment case to strike the right balance between investment and FCF/dividends,” he said.

Rostelecom’s ordinary shares advanced by 12% since the beginning of the year and closed at 108.30 rubles on the Moscow Exchange on March 12. Kim sees a 12-month target at 145 rubles. Vashchenko sees the year-end target at 120 rubles.

“Given the revenue rise and assuming that investors will really start looking at the company not only as a connection operator but as an owner of the largest cloud business, our target for the end of the year stands at 130 rubles,” Delitsyn said.

(73.5081 rubles – U.S. $1)

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