Apr
27
Last wee Comstar-UTS published its quarter and full year’s report under US GAAP. The results of the company have proved to be “strong”, even exceeding market’s anticipations.
On par with announced results company’s management reported its targets on Comstar’s financials for current year, whereas sales growth rate is estimated to add +15-20%, OIBDA margin to form 38-40%, CapEx – 460 mn USD.
Let us take a closer look at Comstar’s latest project – Internet from MGTS. Company has launched a project late September 2007, and it was quite a successful move – according to Comstar’s results. During 4Q the number of broadband subscribers rose +44% (and only +26% during first 9 months). This success was supported by convenient service, free installation, low tariffs and block offers such as “Telephony+Internet”, which offered a discount on use of both services.
Even so, company still has some factors that hold it back – cut of MGTS tariffs. Starting with February 2008 the price of unlimited tariff calling plan has been reduced from 380 RUR to 345 RUR per month (-9%). Considering the fact that over half of natural person subscribers of MGTS chose this tariff – this directly influenced company’s income of local telephony. Such drop could have also warmed migration of subscribers from other tariffs, partially compensating for the drop of income. However, if we take increase of combined tariff plan limit into account (from December 2007 the limit has been increased expanded from 370 min. to 450 min.) this migration is unlikely to occur. In fact if we consider the growth of number of minutes included in combined tariff plan, we would see how much more attractive it gets for MGTS subscribers – in order for combined calling plan price to reach one of unlimited, the traffic of subscriber should exceed 930 min. per month, which is a very high value. More to that – MGTS will lose some more of its income due to elimination of compensatory payments.
After making all necessary changes and updates in our model, we upgrade our forecast for fair price of Comstar’s shares/GDR at year’s late to 13.48 USD (+22 versus previous value). After serious fall of Comstar’s quotes late we upgrade our recommendation from “HOLD” to “BUY”.
Comstar-UTS: Time to conquer the regions - April 25, 2008 (PDF)