Aug
18
Earlier this July Sibirtelecom issued a financial report under IAS-compliant financial year 2007. The results in general are quite strong – Sibirtelecom demonstrated one of the top rates of sales increase (among fellow IRCs). More to that – OIBDA margin growth rate has also proved to be highest, adding +9.1 p.p. to 33.6%.
Amongst companies annual achievements – we must point out the hard grip of cost management – the largest expenditure items, such as staff costs and materials & repairs have remained virtually the same over the past year. The reduction of staff costs came up from reduction of number of personnel. In addition to this – the optimization of personnel will continue through following years, positively affecting Sibirtelecom’s general costs.
One of the most important negative facts of the company was negative cash flow by company, at which company ended the year. Not to mention last five years, all demonstrating similar dynamics. This year’s negative result – debt increase, whereas during last two years the debt to own capital ratio is above value 1. This indicates that Sibirtelecom has all the chances to enter the “unsound” range of companies, considering IRCs debt load standpoint. Do note though, according to our estimates – in 2008 company’s cash flow should once more sink into negative zone, confirming our fears regarding the worsening of Sibirtelecom’s financial condition.
The primary reason for possible negative cash flow of 2008 – high CapEx: throughout 2008 Sibirtelecom plans to invest almost 480 mn USD – this is an absolute value for the company.
Now, considering the published report – we downgrade our estimate of fair price of Sibirtelecom’s stock, down to 0.0902 USD per common and to 0.0676 USD per preferred stock. Whilst previous estimates formed – 0.1140 USD and 0.0855 USD respectively (-21% downgrade). The primary reason to cause the reduction of the estimate – aggressive investment program. Nevertheless, in despite such a significant decrease of Sibirtelecom’s value – company still holds a considerable growth potential. This is still yet to be implemented fully, thanks to the market’s general state. Therefore, we confirm “BUY” recommendation for Sibirtelecom’s stocks.
Sibirtelecom: On the edge of debt pit - August 18, 2008 (PDF)