Jul
22
In the beginning of July, Rostelecom has published its IAS 2007 report. As we have mentioned before, company’s report was not surprising and according to main financial results appeared under our expectations. Company’s revenue increased by +11.4%, OIBDA margin rose by +0.7 p.p. and reached 16.5%. Among the operating results, we should point out a weak growth of international traffic (+4.7%, due to decreased tariffs, the company became more attractive for subscribers) and decrease of international output traffic (-5.8%). Apparently, the competition in this segment is too strong, that is why Rostelecom’s positions are still weak. It should be mentioned that new services have a sound influence on company’s revenue, especially Internet access services.
Konstantin Solodukhin, the head of Rostelecom announced the main trends of company’s development strategy, concerning business diversification. The strategy intends Rostelecom’s entry to new markets – regional broadband, corporate clients and foreign markets. However, the given strategy can be characterized as preliminary and it does not reflect any final figures.
We did not reflect company’s development at the new foreign markets, because Rostelecom has yet to define its development strategy fully. We forecast the decrease of long-distance communications tariffs by -9.4%, due to FTS’ decision concerning the tariffs and we also think that they will not change them during 2009-2010. We also took into account the compensation payment cancelation (costs will decrease by -140 mn USD), which will lead to growth efficiency. Moreover, we have reflected the influence of Golden Telecom’s sale. We did not reflect company’s development at the new foreign markets, because Rostelecom did not define its development strategy in full value yet.
Our new estimation of Rostelecom’s shares is: 4.48 USD per common share and 3.36 USD per preferred share (7.2% fall). The main reason of decrease is difference of our 2007 forecasts vs the current data. Taking into account the increase/decrease potential of Rostelecom’s securities, we keep our “SELL” recommendation on common shares and “BUY” recommendation on preferred shares intact.
Rostelecom: Waiting for diversification - July 21, 2008 (PDF)