FOCUS: Telcos, IT firms’ 2021 quotes dive, yet MTS, Yandex have potential

By Yekaterina Yezhova

MOSCOW, Jan 10 (PRIME) -- The quotes of the Russian telecom operators and Internet companies lost heavily in 2021 as investors shunned parastatal companies or doubted their further progress, analysts said, adding they see growth potential in MTS with dividends and Yandex with diversification.

“The telecommunications industry has performed poorly in 2021. First, we saw that the investor attention switched from defensive assets to resources. Second, the sector was depressed by tougher monetary policy of the central bank. The conservative dividend stocks are traditionally the hardest hit when the key rate rises on the Russian market,” Vasily Karpunin, head of news and research content at BCS World of Investment, told PRIME.

The Moscow Exchange’s telecoms index (MOEXTL) – consisting of MTS’ ordinary shares by 71.65% and of Rostelecom’s ordinary shares by 23.74% and preferred shares by 3.15% as of December 30 – plunged by 10.35% in 2021. The IT index (MOEXIT) – consisting of Yandex’s shares by 78.52% and VK’s depositary receipts by 5.88% as of December 29 – nosedived by 16.55%, while the broad bourse’s index (IMOEX) gained 15.15% over the year.

“It was not an accident, but only logical in the current economic and political climate. On the one hand, it is still easier in Russia to generate a huge and stable profit in the mining industries. On the other hand, such a giant as Rostelecom is still state-controlled. And by the end of the year, the controlling voting stake in VK also fell into the hands of quasi-state companies. It all does nothing to attract private investors,” Algo Capital senior risk manager Vitaly Manzhos said.

Rostelecom

The telecom operator’s ordinary shares, which lost 9.8% in 2021 and closed at 87.22 rubles at the end of the year, have not risen since long ago, Manzhos said.

“They trade now at the level of early 2000 and continue to disappoint investors and speculators. The main reason seems to be its state control as a strategically important company. It is a state policy tool. For the key shareholder, its profitability and capitalization are by far not the most important thing. Corporate announcements are not a crucial factor for the prices,” he said.

He set the 12-month target at 100 rubles. “The shares have a strong growth potential, but the experience of many years shows that it cannot materialize even next year,” Manzhos added.

MTS

The mobile operator’s shares fell by 9.7% in 2021 to 298.60 rubles on December 30 in Moscow and its American depositary receipts (ADRs) decreased by 11.1% to U.S. $7.96 on December 29 in New York.

“The company has ambitious plans, including a potential floatation of its MTS Bank, a possible sale of its tower business, and adoption of a new dividend policy. No details about the dividends for 2022 are known yet, but the MTS management made it clear that it is aware of the importance of the dividends for the investors,” Karpunin said.

The BCS analyst thinks the company’s dividend yield will remain above the market average despite higher investment.

“MTS’ shares are dividend-carrying securities. In mid-October, they sagged because of the dividend gap. Their further fall can be explained mainly by technical reasons. Corporate news do not impact the quotes much,” Manzhos told PRIME.

The Algo Capital analyst set the 12-month target at 330 rubles, and the U.S. dollar-denominated price will depend on the ruble exchange rate.

VEON

The communications holding, which owns mobile operator VimpelCom, started trading its ordinary shares in Moscow in late November 2021 and has lost 4.5% since then, closing at 128.44 rubles at the end of 2021. Its ADRs rose by 11.9% to $1.69.

Manzhos explained the receipts’ growth as a small technical upward correction. “VEON’s securities are a story of many years of unsuccessful investment as the receipts of VK, former Mail.ru Group, for private investors are,” he said, adding that the long-term technical picture does not signal clear movements in its quotes.

VK

The Internet company’s depositary receipts plummeted by 56.2% in 2021 to 872 rubles on December 30 in Moscow and 55.9% to $11.59 on December 29 in London.

“The story of VK’s receipts is a story of many years of unsuccessful investment that ended with capitulation of private investors. The company’s rebranding (from Mail.ru Group into VK) to cement its association in the eyes of investors and users with the eponymous social network was a right, but belated step. Besides, VK has turned into a quasi-state firm in its decision-making. It is most likely in for a long reorganization with a large-scale reshuffle in its management,” Manzhos told PRIME.

“In the situation, the investors are right to worry that VK could turn into a second Rostelecom, whose shares have failed to rise for many years. Now, VK’s receipts have a technical-only potential to jump, but in view of the recent serious fall and the key corporate changes, the target cannot be set.”

Yandex

The Internet company’s shares lost 12.5% in 2021 to 4,514.40 rubles on December 30 in Moscow and 14.4% to $59.59 on December 29 in New York.

“I think that Yandex’s shares are among the most promising industry stocks. They were pulled down by the end of 2021 by VK and now have a good potential for a correctional increase in January–June 2022. The target for the end of 2022 will be their return to the 6,000 ruble level, hitting a new record and possibly a leap to 6,500–7,000 rubles. Active growth of the company’s business and its wide diversification can be mentioned as a positive factor,” Manzhos said.

(74.2926 rubles – U.S. $1)

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