Bloomberg News

Telecoms Posting Monthly Gain as Futures Rise: Russia Overnight

November 30, 2011

Nov. 30 (Bloomberg) -- OAO Mobile TeleSystems, Russia’s largest mobile operator, and competitor VimpelCom Ltd. are headed for a second straight monthly advance on prospects usage of digital services will increase next year.

U.S.-traded shares of Mobile TeleSystems, known as MTS, jumped 4.1 percent in New York yesterday and are up 14 percent this month, while VimpelCom climbed 0.1 percent, extending the November advance to 3.6 percent. The Bloomberg Russia-US 14 Index of Russian companies traded in the U.S. is down 4 percent for the month after adding 0.4 percent to 95.41 yesterday.

Russian telecom company earnings may jump 13 percent next year as the country’s middle class uses more digital services on hand-held devices, said Chris Osborne, chief executive officer of Troika Dialog USA, a unit of Russia’s oldest investment bank. Mobile TeleSystems trades at 11 times analysts’ earnings estimates, compared with 23 times for Bharti Airtel Ltd., India’s largest mobile-phone operator, and 13 for Mexico City- based America Movil SAB, data compiled by Bloomberg show.

“MTS has been a big underperformer and a cheap stock for a long time,” said Osborne in a phone interview in New York yesterday. “Yet on overall multiples and growth, there are many telecoms trading at a premium to MTS but don’t have the same growth profile. As more people enter the middle class, you’ll get more minutes of usage and more people using digital, and that’s what drives growth.”

Futures expiring in December on Russia’s dollar- denominated RTS index rose 1 percent to 147,795 by 2:50 p.m. in New York yesterday. The measure in Moscow has dropped 5.3 percent this month, while the ruble-denominated Micex index lost 2.9 percent. The RTS Volatility Index, which measures expected swings in the index futures, dropped for the second time in three days, falling 2 percent to 49.51 points.

Bank Downgrades

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, was little changed at 29.33, while the Bank of New York Mellon Russia ADR Index rose for a second day, gaining 1.9 percent to 800.33.

The Hong Kong-traded shares of United Co. Rusal, the world’s largest aluminum producer, lost 0.9 percent to HK$5.47 as of 11:17 a.m. local time. The MSCI Asia Pacific Index declined 0.6 percent after Standard & Poor’s reduced credit ratings for lenders from Bank of America Corp. to Citigroup Inc.

S&P cut Bank of America, Citigroup Inc. and Goldman Sachs Group Inc.’s long-term credit grades to A- from A after the ratings firm revised criteria for dozens of the largest global lenders. S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit.

MTS Outlook

MTS’ American depositary receipts advanced to $16.27 by the close of trading in New York, leading gainers on the Bloomberg Russia-US 14, while VimpelCom, a telecom provider formed last year after shareholders Telenor ASA and Alfa Group combined their Russian and Ukrainian wireless holdings, rose to $11.38.

Fitch Ratings cut MTS’ outlook to “stable” from “positive” yesterday, citing risks associated with holding company AFK Sistema, which has a 51.2 percent stake in the mobile-phone operator. “On a stand-alone basis, MTS’s credit profile continues to conform to low investment grade,” Fitch’s analysts led by Moscow-based Nikolai Lukashevich wrote in an e- mailed report.

MTS stock in Moscow slid 1.6 percent to 205.48 rubles, or the equivalent of $6.57. One ADR represents two ordinary shares.

Sberbank Earnings

OAO Sberbank, Russia’s biggest lender, rose 2.1 percent to $10.77 in New York, ahead of reporting third-quarter earnings results in Moscow today. Sberbank is expected to report third- quarter net income of 74.6 billion rubles ($2.4 billion) under international accounting standards, according to nine analysts in a Bloomberg survey. Sberbank shares on the Micex fell 0.5 percent to 82.60 rubles, or equivalent of $2.64.

Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had long-term credit grades reduced to A- from A by Standard & Poor’s after the ratings firm revised criteria for dozens of the largest global lenders. S&P made the same cut to Morgan Stanley and Bank of America’s Merrill Lynch unit. JPMorgan Chase & Co. was reduced one level to A from A+.

Yandex NV, operator of Russia’s most popular Internet search engine, gained 2.6 percent to $21.54, the highest level since Nov. 18, as Renaissance Capital analysts David Ferguson and Anastasia Demidova in Moscow said that the company’s market share has stabilized at above 60 percent after plunging in August and September, according to LiveInternet data.

Oil Prices

Oil rose for a third day in New York after U.S. consumer confidence climbed by the most in more than eight years, boosting the outlook for energy demand in the world’s biggest economy. Reports Iranian protesters broke into and vandalized the British Embassy’s compound in Tehran also bolstered prices for Russia’s biggest export earner.

Crude for January delivery dropped 0.5 percent to $99.25 a barrel on the New York Mercantile Exchange in after-hours trading following a three-day, 3.8 percent jump. Brent oil for January settlement added 1.7 percent to $110.82 on the London- based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, climbed 1.9 percent to $110.84. Oil and natural gas contribute about 17 percent of Russia’s economy.

The Micex has lost 14 percent in 2011 and trades at 5.1 times analysts’ earnings estimates for member companies. That compares with the 20 percent slide for Brazil’s Bovespa index, which trades at 10 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 11 times, and the BSE India Sensitive Index has a ratio of 14.

--Editors: Emma O’Brien, Marie-France Han

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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