FOCUS: Rostelecom stocks top Jan–Sep index growth, Yandex, Mail.ru to lead

By Yekaterina Yezhova

MOSCOW, Oct 5 (PRIME) -- The telecoms index, chiefly based on MTS and Rostelecom, advancing 9.82% since the beginning of 2020, did not fall victim of the COVID-19 repercussions, like the broader MOEX Russia Index, which fell by 4.60%, analysts said. They believe that Yandex and Mail.ru Group will most likely stay growth leaders.

“The coronavirus pandemic has hurt the telecom companies much less than other industries. Besides, investors think that the launch of 5G in the future could become a growth driver for the operators, mainly with revenue from 5G-based new services,” investment company Finam analyst Leonid Delitsyn told PRIME.

The telecoms index was by 72.65% comprised of the ordinary shares of mobile operator MTS and by 22.31% of state-controlled telecom operator Rostelecom as of September 30, and the preferred shares of Rostelecom accounted for 3.05% and MGTS, MTS’ fixed-line unit, for 1.99% of the indicator’s weight.

MTS’ ordinary shares grew by 6.1% since the beginning of the year, closing September at 339.55 rubles. “They mostly play the role of defensive stocks thanks to the issuer’s stable revenue. We think they’ll fluctuate at 320–360 rubles, closer to the middle of the range, till the end of 2020,” investment company Algo Capital senior risk manager Vitaly Manzhos said.

The operator’s American depositary receipts (ADRs) decreased by 14% since the beginning of the year closing on September 30 at U.S. $8.73 on the New York Stock Exchange.

Rostelecom’s ordinary shares rocketed by 25.70% since the beginning of the year, closing on September 30 at 98.47 rubles. “We may be witnessing revaluation of the securities after consolidation of successful business of mobile operator Tele2. It should be noted that at the current price of almost 100 rubles, the dividend yield of some 5 rubles per share is not looking as inviting as it did during the spring sagging,” Manzhos told PRIME.

He also said that Rostelecom’s ordinary shares are no longer a defensive stock as they still trade at the level of the early 2000 year, having failed to increase for the two decades, while their dollar-denominated price has decreased.

From a technical point of view, Rostelecom has potential of growing to 110–150 rubles until the end of the year. “However, one should not be deluded – Rostelecom’s ordinary shares have many times frustrated shareholders and speculators’ hopes. It will not be surprising if they fail to continue growing or even start falling.”

Yandex’s local shares spiked by 87.2% since the beginning of the year closing September at 5,049.40 rubles and its ADRs rocketed by 50% to $65.25 on the Nasdaq.

“The company grew together with the U.S. high-tech stocks of Apple, Amazon, Facebook, NVidia, PayPal, and other shares. The first idea was anticipation of a full-fledged rivalry with the firms united under the umbrella of Russia’s top lender Sberbank in the e-commerce industry. Researcher Data Insight increased its outlook for the country’s e-commerce growth to 33% per year, and Yandex cemented its intention to lead this industry thanks to expansion of its marketplace Yandex.Market,” Delitsyn at Finam said.

“The latest upbeat news was Yandex’s confirmation of negotiations to acquire TCS Group with its innovative bank Tinkoff Bank, which points to a significant strengthening of Yandex’s footing in fintech.”

Yandex’s stocks are fairly valued and will move together with investor expectations from the global economy and the U.S. high-tech in the next three months. In the moments of panic, they will ease, but in the periods of enthusiasm, for example, in case of a rally after the U.S. presidential elections, will return to highs, the analyst said.

Mail.ru Group rose on the Moscow Exchange by 25.60% since its local listing on July 2 to the closing price of 2,136.20 rubles on September 30 and by 22.9% since the beginning of the year to $27.40 on the London Stock Exchange.

“On the home market, the company’s receipts are purchased by local investors who know the company well, see its stable position and believe in the prospects of monetization of its audience as it is turning into a large e-commerce player in tandem with Sberbank. Its possible adding to the MSCI Russia Index, which is to be rebalanced in November, is also an upside,” Delitsyn said.

The analyst said that Mail.ru Group is undervalued in comparison with Yandex as investors are having the same doubts as they earlier had regarding Yandex, fearing that the Internet company would have played the role of an inferior technical partner in the Sberbank ecosystem, serving the bank’s growth only. 

Manzhos at Algo Capital said Mail.ru Group rose following Yandex. “We should remember that the choice of high-tech securities on the Russian market is not abundant, which served as extra support for Mail.ru’s receipts. But their growth has been cooled by a recently announced hasty placement of securities and convertible bonds,” he added.

(78.0915 rubles – U.S. $1)

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