Telecom stock Mobile Telesystems (
MBT
,
quote
) was off almost 4% Wednesday, giving back much of its
post-earnings 7.3% jump earlier in the week.
The Russian market leader reported a 59% increase in profits and
a 3% increase in revenues on the year. The market had initially
cheered management guidance for 5-7% revenue growth and an
incremental increase in margin estimates but global concerns have
once again brought the shares down.
The company managed to keep its first place market share with
31%, even while losing about 2.1 million subscribers from its
user base.
While much of the good news for Mobile Telesystems was
attributable to currency gains, there is evidence that pricing
competition will ease in the coming quarters.
Vimpelcom (
VIP
,
quote
) said recently that it would be adjusting its strategy from a
market share grab through low-cost pricing to focus more on
earnings generation.
Tim Seymour brought the story out on Tuesday, showing
strength in the Russian consumer market
and strong economic fundamentals going forward. GDP growth for
the first quarter surprised investors with a gain of 4.9% and
relatively low inflation. Though inflation may pick up in the
second half of the year on wage growth and consumer demand, an
easing of global uncertainty could compensate for slower spending
through a sentiment shift.
Despite the losses on Wednesday, telecom stock seems to be one
of the few safe havens in Russian ADRs. Shares of MBT are still
up 8.5% from the beginning of the year, compared to a drop of
37.1% for Mechel OAO (
MTL
,
quote
) and 10.9% for the Market Vectors Russia (
RSX
,
quote
) over the same period.
Valuations are still a little more expensive at just under 10
times trailing earnings versus six times trailing for the index,
though revenue growth and the outlook for margin go a long way to
justify the higher relative price. With more pain on the way for
global markets, the outlook is increasingly uncertain for
commodities and the larger Russian index.
Investors may want to seek the relative safety of telecom
stock until later in the second half. An exit strategy for Greece
will probably need to be worked out sometime in the coming
months. Once this and an E.U. growth package can be formalized,
then markets may return to trading on country-specific
fundamentals which are positive for Russian equities.
