Bloomberg News

VimpelCom Cheapens to MegaFon as Russia Sales Beat Income Abroad

August 07, 2013

VimpelCom Ltd. (VIP:US), the wireless carrier owned by Russian billionaire Mikhail Fridman and Telenor ASA (TEL), fell in New York and approached the biggest discount to rival OAO MegaFon as operations abroad ebb revenue growth.

American depositary receipts of Amsterdam-based VimpelCom dropped 1 percent to $9.88 yesterday, widening its discount to Moscow-based MegaFon to 32 percent. The gap reached a record 35 percent on July 9, according to data compiled by Bloomberg based on estimated earnings. The Bloomberg Russia-US Equity Index slumped 1.3 percent yesterday, while RTS stock-index futures were little changed at 130,150 in New York hours.

VimpelCom, Russia’s third-largest mobile provider, posted a 2 percent drop in second-quarter earnings to $2.43 billion today, missing the average analyst estimate of $2.45 billion. The company, which got 39 percent of sales from Russia in 2012, is working to reduce $28.6 billion of debt resulting from the acquisition of telecommunications assets in Italy and Algeria. Most of MegaFon’s sales come solely from Russia, where economic growth is expected to accelerate in the second half of the year.

“While MegaFon remains focused on Russia and benefits from economic growth in the country, VimpelCom’s strategy is unclear,” Evgeny Golosnoy, an analyst at IFC Metropol, said by phone from Moscow yesterday. “When you invest in VimpelCom you expose yourself to its debt risk, as well as unconvincing geography of its business.”

Estimated Earnings

VimpelCom tumbled 21 percent since reaching this year’s high on Feb. 11 to trade at 8.2 times estimated earnings, according to data compiled by Bloomberg. MegaFon, which has a valuation of 12, slid 0.9 percent to $30.90 in London yesterday.

The Micex Index (INDEXCF) sank 0.4 percent to 1,359.75 by 10:54 a.m. in Moscow. The ruble was little changed at 37.8869 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 33.1566 per dollar in three months.

VimpelCom’s earnings before interest, taxes, depreciation and amortization narrowed to 42.4 percent of sales from 43.2 percent, the company said in today’s statement. It also named Andrew Davies chief financial officer.

Regulation Changes

Net income increased 17 percent to $573 million, helped by lower taxes and financial expenses. Sales rose in Russia, the company’s biggest market, and other former Soviet countries. Revenue fell in Italy amid changes in the regulation of so-called termination rates. It operates in 15 countries and total revenue was little changed at $5.7 billion.

The gauge of the most-traded Russian stocks in the U.S had the biggest drop since July 18 to 89.46. The Market Vectors Russia ETF (RSX:US), the largest dedicated Russian exchange-traded fund, fell 2.2 percent to $25.70 in New York, the lowest level in about a month. The RTS Volatility Index, which measures expected swings in the stock futures, slid 3.5 percent to 24.14.

CTC Media Inc. (CTCM:US) tumbled 8 percent to a five-month low of $10.81. The Russian television holding company reported second-quarter earnings of 20 cents per share, a 9.1 percent decline from a year earlier.

West Texas Intermediate crude for September delivery decreased 1.2 percent to settle at $105.30 a barrel on the New York Mercantile Exchange. Brent for September settlement slid 0.5 percent to end the session at $108.18 a barrel on the London-based ICE Futures Europe exchange.

United Co. Rusal (486), a Moscow-based aluminum producer, dropped 1.9 percent to HK$2.57 in Hong Kong trading as of 2:54 p.m. local time. The MSCI Asia Pacific Index fell 1.3 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • VIP
    (VimpelCom Ltd)
    • $5.87 USD
    • 0.04
    • 0.6%
  • RSX
    (Market Vectors Russia ETF)
    • $21.34 USD
    • -0.26
    • -1.22%
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