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Veles Capital maintains "buy" recommendation on Dalsvyaz 9 September 2008 Source: www.veles-capital.ru
We reviewed fair price of company’s securities when Dalsvyaz published its financial IAS report. The last year can be characterized as favorable for company’s business, but Dalsvyaz has not yet used up all its opportunities, settled by regulatory body, at full extent. First of all we should mention that Dalsvyaz has become a leader among other IRCs on revenue growth rate (+46.2%). The boosting factor was – consolidated results of Sakhatelecom. However, this factor negatively influenced Dalsvyaz’s efficiency – OIBDA margin of Sakhatelecom (26.3% over year 2007) is lower than Dalsvyaz’s efficiency, leading to “degradation” of these results for the merged company. Moreover, there are few other growth drivers for company’s income over year 2007. The main driver – implementation of 3 different tariffs of local communications, which allowed Svyazinvest and all its IRCs to increase its income. It should be mentioned that Dalsvyaz’s situation was not too sound – the company has changed its tariffs twice over the year 2007 (in comparison with other IRCs). If the company increased its tariffs much higher, Dalsvyaz would have higher growth rates of revenue and as a result, it would have had a positive influence on company’s efficiency. We have reviewed company’s financial model, taking into account published data, excluding the information, concerning sale of cellular business, i.e. there are some uncertainties of terms and a price of the deal. Moreover, we have excluded a possible growth of tariffs on local communications over year 2008. However, over August-September some IRCs have increased the price of unlimited tariff for individuals to the highest level, settled by FTS. If Dalsvyaz tries to conduct such growth of tariffs, we will review company’s stocks for higher estimation. Taking into account all changes, we decrease fair price of company’s stocks: 6.6357 USD per common share and 4.9768 USD per preferred share. The previous fair prices were – 7.4437 USD and 5.5842 USD respectively. The main reason – aggressive investment program. Therefore, after a fall of quotes, Dalsvyaz’s stocks have a sound growth potential. We confirm “BUY” recommendation on both types of Dalsvyaz’s securities. |
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