Russian mobile major Mobile TeleSystems (MTS) posted a 5.5% year-on-year increase in revenues under IFRS to RUB130bn ($1.8bn) in 1Q21, with EBITDA gaining 6.7% y/y to RUB55.4bn, making a 45% margin. Net income was down by 8.8% y/y to RUB16bn, but adjusted for foreign currency and derivative operations, the bottom line would increase by 19% y/y.

As followed by bne IntelliNews, the company paid a solid final dividend for 2020 after seeing 4Q20 results supported by economic recovery in Russia. The operator is an anchor asset of the AFK Sistema multi-industry investment conglomerate. 

EBITDA gains in 1Q21 were attributed by Sberbank CIB to increased profitability at MTS Bank (bank's EBITDA margin was up 14 percentage points y/y), which was partially offset by a drop in high-margin international roaming revenues. 

In Russia in 1Q21, revenues grew 5.6% y/y to RUB122.5bn, while EBITDA was flat y/y at RUB44.3bn. Due to modest tariff hikes, mobile service revenues rose 2.3% y/y, down from 6.4% growth in 4Q20 due to a higher base. "This compares favourably with [rival operator's] VEON's 2.3% drop in 1Q21," Sberbank CIB commented. 

MTS showed sales of handsets and accessories in Russia jumping 19.6% y/y to RUB17.4bn, even despite a 3% decline in MTS's store count in 1Q21.

The operator's free cash flow (FCF) came in at RUB11.3bn, down RUB16.7bn y/y due to a 45% increase in cash capital expenditures, which reached 24% of revenues in the reporting quarter.

MTS confirmed its 2021 guidance of at least 4% revenue and EBITDA growth, along with cash capex of RUB100bn-RUB110bn, including investment related to the so-called Yarovaya data storage.

"The results were in line with the company-compiled consensus on revenues but beat it by 3.5% on EBITDA," Sberbank CIB analysts commented, while being "pleased to see a solid performance from MTS Bank, which delivered 17.9% y/y revenue growth and improved profitability". 

The company expects MTS Bank's ROE to come in at 12% this year (up from 3.5% in 2020), and commented that it is unlikely to inject cash into the bank this year, given the regulator is currently seeking to cool market growth.

BCS Global Markets sees the number as "decent" with EBITDA 2-4% above expectations, and overall seeing 1Q21 as slightly positive for MTS shares (Buy call reiterated). BCS GM notes that mobile revenue growth slowed, but argues it "should accelerate over the year due to moderate competitive situation and as technical factors abate".

BCS GM analysts also highlight from the conference call of MTS that the capital expenditure jump in 2021 is temporary and does not represent a new long-term level. Kion video service should be a major ecosystem component for MTS, with the long-term aim to become one of the top three in video streaming services in Russia with 20mn users.

"We see the results release and management’s comments during the subsequent conference call as marginally positive for the stock," Sova Capital wrote on May 19 while affirming a Buy call on MTS shares.

Sova analysts were encouraged to see that MTS is making progress in developing its ecosystem, in particular when it comes to the number of MTS Premium subscribers (+50% over the past six months), MTS Cashback registered customers (+95% y/y) and OTT users (+189% y/y).