Sova Capital analysts held a conference call with the management of Russian state integrated telecom major Rostelecom and investors. The analysts "got a marginally positive impression from the call," seeing Rostelecom offering an "interesting combination of growing new businesses that could provide powerful value crystallisation opportunities and commitments to seeing its dividend yield grow".

Sova reiterated a Buy rating on Rostelecom shares, which trade at an estimated 2022 Enterprise Value/EBITDA of 3.6x and Price/Earnings of 7x.

In 2019 Rostelecom consolidated control in the "big four" mobile operator Tele2. The state company also remained the major recipient of B2B, B2G telecom and infrastructure contracts. Rostelecom is also in focus regarding the planned rollout of 5G in Russia, as well as the growing data centres and cloud services segment.

Sova believes that Rostelecom’s main competitive advantage in the cloud and data centre market is that the company acts as a single supplier of a wide range of different solutions for clients. The company also aims to extend its product line, as well as to broaden the regional presence of data centre facilities.

Notably, the Data Centres and Cloud unit is the first candidate for a potential IPO within the next few years due to the size of the business and its rapid pace of development. The next assets that are most ready for value crystallisation are RTKM’s Information Security and Digital Region businesses, Sova Capital analysts note.

The management of Rostelecom also reiterated that it is committed to seeing its dividend grow every year, translating the company’s successful growth into yield for shareholders. 

Previously there was a possibility of increasing the company’s 2021 dividend per share to RUB5.5-6/share, implying a DPS growth of 10-20% year on year, which is ahead of the minimum 5% y/y increase targeted by the new dividend policy.

Most recently the company maintained the dividend recommendation at 77% of adjusted free cash flow (FCF) in line with its dividend policy.