Russian mobile major MTS makes a fast exit from Uzbekistan

By bne IntelliNews August 8, 2016

One of the three largest Russian mobile operators MTS pulled out of Uzbekistan by selling 50.01% of its subsidiary UMS (Universal Mobile Systems), the company said on August 5. MTS denied reports that the fast exit was due to an anti-corruption probe and money laundering investigation.

In 2016 another Russian mobile telecom major VimpelCom had to set aside $795mn for violating Dutch anti-graft laws and the US Foreign Practices Act for allegations of corruption and money laundering charges related to its operations in Uzbekistan.

VimpelCom, along MTS and Nordic TeliaSonera, allegedly bribed entities connected to Gulnara Karimova, the Uzbek president’s now disgraced eldest daughter, to win licences to operate in the mobile market, including 3G and 4G licences that generated more than $2.5bn in revenue.

MTS denies that selling 50.01% in UMS is related to the US-lead investigation and attributed it to “business reasons and other circumstances”.

Earlier reports suggested that MTS’s stake could be sold for a “symbolic price”, while the company itself said it will write off RUB3bn after transferring its stake in UMS to the government-owned wireless operator Uzmobile.

MTS reentered Uzbekistan market in 2014 by establishing a joint-venture UMS with the Uzbek government, the local operator having 1.1mn subscribers (5.4% market share) making it the third-largest player on the market.

“The operations in Uzbekistan provided only an immaterial contribution to MTS’s consolidated financials: 2% of sales and 0.4% of Ebitda in 1Q16,” UralSib capital commented on August 5.

With this in mind and given high risks of doing business in the region the risk of losses, which might result from the anti-corruption case, the bank welcomes the company's decision to pull out of UMS and reiterates its Buy recommendation on MTS.

AFK Sistema itself noted strong performance by its anchor asset MTS mobile operators, stressing that it outpaced peers in terms of revenue growth, while children's good retailer Detsky Mir retailers and Segezha Group wood processor remained key growth drivers for the conglomerate.

MTS is one of Russia's "big three" mobile operators, previously reported revenue growth of 8% y/y to RUB108bn ($1.62bn) in the first quarter of 2016 under IFRS.

The company is an anchor asset of Russian multi-industry investment conglomerate AFK Sistema. "Sistema's credit profile is primarily shaped by its ability to control cash flows and upstream dividends from MTS," Fitch Ratings said on May 19 upon affirming its long-term Issuer Default Rating (IDR) at BB- with stable outlook.

  2014 2015E 2016E 2017E
Financials, $ mln      
Revenues 10,818 7,049 6,306 6,204
EBITDA 4,621 2,590 2,643 2,883 2,530 2,471
EBITDA margin 43% 41% 40% 40%
Net income 1,323 926 770 741
EPS (adj), $ 1.33 0.93 0.77 0.75
Div/share, $ 0.74 0.71 0.68 0.71
Valuation, Gearing and Yield        
EV/EBITDA 2.7 3.6 4 4
P/E 5.9 7.8 9.4 9.8
P/CF 1.9 3.2 3.5 3.5
Net debt/EBITDA 0.9 1 1 0.9
Dividend yield 9.40% 9.70% 9.40% 9.70%
Revenues -14% -35% -11% -2%
EBITDA -16% -39% -12% -2%
EPS (adj) -47% -31% -17% -4%
Sector Valuation      
EV/EBITDA 2 4 4.4 4.4
P/E 3.3 9.1 10.2 10.6
P/CF 1.3 3.8 4.1 4.2
Sector Growth      
Revenues -2% -36% -11% -2%
EBITDA -3% -39% -12% -3%
EPS -15% -29% -11%  
Main Shareholders      
Sistema       51.50%
Free float       44.80%
Treasury shares     3.80%
MTS 4Q15 IFRS, R mln
  4Q14 3Q15 4Q15A Q-o-Q y-o-y 4Q15E A/E 4Q15C A/C
Revenues 107,202 115,034 113,325 -1.50% 5.70% 114,555 -1.10% 111,607 1.50%
Adjusted EBITDA 44,346 48,019 43,495 -9.40% -1.90% 44,374 -2.00% 42,628 2.00%
EBITDA margin 41.40% 41.70% 38.40% Ð Ð 38.70% Ð 38.20% Ð
Net income 1,381 14,393 7,135 -50.40% >100% 12,573 -43.30% Ð Ð
Net margin 1.30% 12.50% 6.30% Ð Ð 11.00% Ð Ð Ð
C Ð Interfax consensus estimates              
Source: Company, Interfax, Sberbank CIB Investment Research

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