FOCUS: Tele2 tops by Q2 growth rates on MTS-led market, analysts look for corp news

By Yekaterina Yezhova

MOSCOW, Aug 26 (PRIME) -- The telecommunication companies explain worsening of some of their April–June results in Russia by higher value-added tax and zero internal roaming, while analysts say corporate efforts rather than the market climate will define the short-term future.

“Tele2 (T2 RTK Holding’s brand) showed the strongest and most stable results in April–June, especially in comparison with Beeline (VimpelCom’s brand). Statistically, MTS also showed robust results,” investment company Freedom Finance analyst Alexander Osin told PRIME.

“On the whole, the current trends of corporate statistics show that Tele2 with support of its head holder, state-controlled telecom company Rostelecom will continue to bite off pieces of the market gradually in the mid-term.”

Investment company Algo Capital senior risk manager Vitaly Manzhos said mid-term prospects of the top four major mobile carriers will depend mainly on corporate events rather than operations. “For example, Tele2 could be fully consolidated by Rostelecom. MegaFon, which has recently become private, could revise its strategy and management scheme,” he said.

MTS CEO Alexei Kornya said the management will present recommendation on listings to the board within a month or two, with all options, including staying on the NYSE.

Core April–June results on the local market are as follows:

	MTS		MegaFon		VimpelCom		T2 RTK Holding
	Bln	Change, y-o-y, %	Bln	Change, y-o-y, %	Bln	Change, y-o-y, %	Bln	Change, y-o-y, %
Revenue	115.3	+8.4	84.3	+4.4	72.6	0	39.7	+12.7
Mobile	79.7	+1.7	70.7	+5.4	57.0	-1.1	-	-
Fixed-line	15.0	-1.2	6.7	-15.2	8.5	-4.9	-	-
Sales of goods	15.6	+10.6	6.9	+20.2	6.9	+20.0	-	-
Net profit	12.5	-15.3	2.9	-56.9	-	-	1.4	+42.6
	OIBDA				EBITDA
	52.3	+2.3	38.1	+19.2	32.2	+18.1	15.5	41.2
OIBDA/EBITDA margin	%	Change, pp	%	Change, pp	%	Change, pp	%	Change, pp
	45.3	-2.7	45.2	+5.6	44.3	+6.8	39.2	+7.9
Subscribers, mln	78.1	0	75.9	0	54.3	-3.7	-	-

Revenue growth champions were Tele2 and MTS.

“The second quarter has become an important period for the company: Tele2 expanded its geographical presence and now works in 67 regions of the country…In the second quarter we launched a ‘smart’ tariff, which became very popular with subscribers. Tariff Other Rules distinguishes Tele2 from the other players on the highly-competitive market, ensures a high level of client trust and a stable low churn rate,” Tele2 CEO Sergei Emdin said in a statement.

Manzhos at Algo Capital said MTS’ revenue grew faster than inflation and looked quite satisfactory for the company. “A significant impact was contributed by MTS Bank,” he said.

MTS said consolidation of MTS Bank’s financial results, which began in July–September 2018, continued to be the largest top-line factor on a year-over-year basis. The bank contributed 6.9 billion rubles to the operator’s 115.3 billion ruble total revenue on the local market.

The operator also said that OIBDA was constrained by the VAT increase at the beginning of 2019 as well as cancellation of internal roaming in September 2018. “MTS saw 10.6% year-over-year growth in sales of goods, primarily driven by increased software sales. Revenue from handsets and accessories was largely flat year-over-year, with top-line performance moderating along with a rising base effect from the rapid growth witnessed in 2018,” the operator said in a report.

VimpelCom’s sole owner, Amsterdam-based VEON said the Russian market was characterized by continued price and sales competition during the quarter impacting the overall market growth.

“Total revenue in April–June was at 72.6 billion rubles, driven by the strong growth in sales of equipment and accessories up 20% to 6.9 billion rubles, following the expansion of our monobrand stores. Mobile service revenue decreased by 1.1% to 57 billion, negatively impacted by the VAT increase to 20% from 18% and the termination of national roaming,” VEON said in a report.

Osin at Freedom Finance said that all the four had problems with maintaining growth rates. “The situation is explained by a longstanding stagnation of the Russian economy and the fact that the communications market has entered the maturity stage. As households’ incomes fall, regulators’ pressure increases because of weaker lobbying possibilities of industry institutions and tougher competition,” the analyst told PRIME.

He said the companies are looking at related markets, like credit and digital services for MTS.

MTS and MegaFon kept their subscriber base positions, while VimpelCom lost 3.7% of its clients “largely as a result of a decline in sales through alternative distribution channels following the expansion of Beeline monobrand stores. We also saw a decline in migrant customer volumes by 30% in the period,” the operator said.

MegaFon regards its stable base “as a good result as the subscriber base in 2018 benefited from a one-off effect of SIM-card purchases by visiting World Cup fans.”

T2 RTK Holding does not disclose its clientele quarterly.

Researcher AC&M puts the nationwide subscriber base at 255.7 million in 2018.

(65.6046 rubles – U.S. $1)

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