Veles cuts MTS target to 308 rbl, Buy recommendation retained

MOSCOW, Dec 12 (PRIME) -- Russian investment company Veles Capital has reduced the target price of common shares of mobile operator MTS by 6% to 308 rubles, but the Buy recommendation was maintained, according to Veles Capital’s research note seen by PRIME on Wednesday.

“We point to a rise of macroeconomic and country risks, reflected in the growth of a risk-free rate, higher capital expenditures as the company factors in costs on the data retention law into its outlook, abolition of internal roaming in Russia, dilution of the adjusted OIBDA margin because of a rapid increase of revenue of the monobrand chain,” analyst Artyom Mikhailin said.

Creation of a large reserve for an Uzbek corruption case was negatively perceived by investors and provoked worries about its influence on future dividends and the company’s total investment profile, he said.

“We think the final costs could be much less than the created reserve, like in case with VEON. The operator also has a rather stable financial state with a low debt burden and constant cash flows, which, in our view, allows it to pay dividends at the previous level even in case of a large one-time cash outflow. If the amount of payment (under the case) is below the reserve, we expect to see a positive response from the market,” Mikhailin said.

MTS’ common shares added 0.25% to 224.55 rubles as of 10.58 a.m. Moscow time.

(66.5022 rubles – U.S. $1)

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