FOCUS: MTS 2022 results fail to impress, operator looks for profit sources

By Yekaterina Yezhova

MOSCOW, Mar 13 (PRIME) -- MTS underperformed in 2022 that will unlikely allow the major Russian mobile operator to raise dividends much as it seeks to raise tariffs and expand the ecosystem with non-core businesses, analysts said.

“MTS’ recent quarterly and annual reports should be seen as quite poor. A strong annual and quarterly decrease of the profit attributable to the company’s owners can be justified to some degree by a complicated and extraordinary economic situation in 2022,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

The indicator plunged by 60.1% on the year to 5.4 billion rubles in October–December and 48.7% in 2022 to 32.6 billion rubles.

“A weak rise of the annual and quarterly revenue of the group, which is mainly focused on the internal market, seems a very alarming signal,” Manzhos said.

MTS’ total revenue added 1.6% to 144.4 billion rubles in October–December, and its Russia revenue rose by 1.5% to 142.2 billion rubles. In 2022, the group’s revenue went up by 2.6% to 541.7 billion rubles.

“With adjustment for Russia’s 11.9% annual inflation, we can in fact speak about shrinking revenue. It affects the shares, which are traditionally viewed as dividend securities,” he added.

MTS adopted its 2019–2021 dividend policy in March 2019 with a target annual yield of at least 28 rubles per share.

“Total 2021 dividends amounted to 44.4 rubles, or 17.2% of the current price. There were no formulas to calculate dividends in the previous policy. Given the current stagnation of the issuer’s revenue, we will hardly see any increase in dividends for 2022. They will probably amount to 33 to 44 rubles,” Manzhos said.

Otkritie Research analyst for global research Andrei Kochetkov said that MTS’ statement hints that the dividend for 2022 will be at least no less than for 2021.

“On the whole, MTS’ 2022 results were under pressure, yet relatively stable, which should contribute to keeping the dividend payments this year at the level of the previous year,” BCS World of Investment said in a note.

MTS’ ordinary shares stayed flat over the week and gained 9.5% since the beginning of the year closing at 258 rubles on March 10 on the Moscow Exchange.

“The mid-term technical target for MTS’ shares is their recovery to 270–310 rubles in summer–autumn 2023. However, after the ex-dividend date the stock will risk sagging again to the range of 230–270 rubles for a long time. In general, the securities lack a significant potential of robust increase from the current level as they are of a dividend nature,” Manzhos at Algo Capital told PRIME.

The company’s subscriber base remained at 80 million as of the end of 2022. “We see that the company does not show an intensive rise of its core business, which is provision of mobile connection services,” Manzhos said.

He said the company’s decision to charge a 1% commission for topping up the subscriber account is symptomatic. “It looks like a desperate attempt to improve hastily the financial performance at the expense of the existing loyal customer base,” the analyst said.

MTS warned its clients in personal accounts in late January that it would apply new terms of topping up the balance from February 1. The commission will not be charged on automatic payments, at the operator’s stores, and via MTS Bank cards.

The company’s options to hike tariffs are also limited not only by the market conditions but by regulatory restrictions. The Federal Antimonopoly Service found MTS guilty in October 2022 of raising tariffs for its subscribers twice the inflation rate without a justified reason in August–October. According to the Federal State Statistics Service, inflation stood at 10.46% as of the end of September since the beginning of 2022.

Since the opportunities to raise profit and revenue from the core business are scarce now, MTS is expanding its ecosystem.

“It is true that the new and related MTS’ activities show an increase in the client base. But there is now a great deal of other competing ecosystems. This is why this strategy does not guarantee a fast and easy business expansion and a steady improvement of financials,” Manzhos said.

“This way or another, MTS is following this path. Rumors of a possible looming acquisition of ticket operator TicketsCloud is the recent proof to it. The sphere is very far from connection services.”

(75.9406 rubles – U.S. $1)

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