FOCUS: Subscription saves telecom quotes from heavier Jan–Sep losses

By Yekaterina Yezhova

MOSCOW, Oct 3 (PRIME) -- Securities of the telecom operators lost almost half less on the Moscow Exchange in January–September than the Internet companies’ stocks thanks to subscription fees as a stable source of income, analysts said, adding that the quotes will be guided by the geopolitical situation.

“The main factor of relative sustainability of the telecom shares unlike the IT ones is the subscription fee. On the other hand, if investors wait for a rapid rise from IT companies, telecommunications are viewed upon as a mature industry where options of growth are mostly exhausted,” Leonid Delitsyn, an analyst at investment company Finam, told PRIME.

“This is why the price of such shares depends in the first place on the amount of dividends they pay. Now, the quotes are discouraged by threats that the telecom companies could decide against dividends. If these worries calm down and the geopolitical tensions do not aggravate, the price of shares may return to the August levels but unlikely higher.”

The ordinary shares of state-controlled telecom operator Rostelecom decreased 39.2% since the beginning of 2022 closing the September 30 session at 53 rubles. Mobile operator MTS’ shares fell 37.6% to 186.45 rubles.

“One of the strongest points of growth of Rostelecom is the division of data processing centers and cloud services and for MTS it is development of fintech, media services, and the ecosystem,” Dmitry Puchkaryov, a stock market expert at BCS World of Investment, told PRIME.

“For investors, Rostelecom and MTS are conservative dividend stocks. The securities are viewed as protective thanks to stable demand for telecommunications services during the times of market turbulence.”

Should the market sentiment get balanced, Rostelecom’s ordinary shares could get back to 58–63 rubles and MTS’ shares to 230–250 rubles by the end of 2022, Puchkaryov said.

Delitsyn at Finam said that Rostelecom has brighter growth prospects, which still may fail to inspire its quotes because investors in telecom firms are not interested in increase but foreseeable dividends.

The receipts of VEON – the Amsterdam-based owner of Russian mobile operator VimpelCom, working under brand Beeline – plunged 82.1% in January–September on the Moscow Exchange closing September’s last session at 23 rubles.

“VEON’s falling deeper than its counterparts is related to an expected negative impact on its Ukrainian business, difficulties with equipment supplies. It is worsened by an ongoing outflow of subscribers. Potential drivers of resumed dividends and narrowed debt in 2022 have taken second place,” Puchkaryov at BCS said.

Delitsyn said that VEON had claimed the status of one of the largest global operators, but it worked on big but not the widest markets. During the 2020 pandemic, when VEON’s quotes halved to U.S. $1.2 from $2.6, it seemed they had no more room to fall. Investors placed much hope on the new management that was close to bring the company back to growth.

“However, the geopolitical crisis put VEON in a complicated situation: a significant part of its business resides in Russia while it is headquartered in Amsterdam with the main trading held on the Nasdaq floor,” Delitsyn said.

The receipts of Internet company VK decreased 59.8% in January–September to 350.20 rubles on September 30 and Yandex’s shares dove 58.7% to 1,863 rubles.

“The securities of the IT companies have historically had a higher beta coefficient, which means they ascend higher in case of growth but descend more dramatically in case of fall,” Puchkaryov at BCS said.

The IT companies earn up to a half of their revenue from advertising, where the situation is uncertain. “On the one hand, the traditional advertising market is expected to fall 30% because of the withdrawal of foreign advertisers. On the other hand, the lack of entry to the platforms of Mark Zuckerberg’s holding has brought advertisers to Yandex and will bring them to VK sooner or later,” Delitsyn at Finam said.

He added that the IT companies’ quotes will fluctuate much stronger than those of the telecom operators.

As to Yandex, the main question is what the company is and who will own it. “Which business will it keep and which one will it abandon? How has the loss of the main page leased out to VK for a long time influenced the company? Will (Audit Chamber head Alexei) Kudrin become a billionaire in exchange for help in a split of the company’s assets or will he lead the company? While investors have no answers, they will take time with purchases,” Delitsyn said.

Puchkaryov at BCS said that if the sentiment stabilizes, VK and Yandex’s quotes have a huge increase potential.

Yandex’s strength is its high growth rates as well as taxi and e-commerce segments, and VK’s most promising segment is online education. VK’s capitalization may also be boosted by the ongoing restructuring, including the sale of the gaming segment and the recent assets swap with Yandex.

If the market’s mood improves, Yandex may climb to 2,000–2,300 rubles and VK to 500–580 rubles by the end of 2022, the BCS analyst said.

(55.2987 rubles – U.S. $1)

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