OAO Mobile TeleSystems (MBT:US), Russia’s largest wireless carrier, rallied the most in almost nine months in New York and narrowed its discount to OAO MegaFon (MFON) as a surge in data demand bolstered its profitability outlook.
American depositary receipts of MTS climbed 4.5 percent yesterday, the most since Nov. 29, rebounding from the cheapest level in a month relative to MegaFon, the nation’s second-largest wireless carrier. The Bloomberg-Russia-US Equity Index of the most-traded Russian stocks in the U.S. snapped a three-day slump. MTS added 1.3 percent by 12:21 p.m. in Moscow today, extending yesterday’s 2.5 percent gain.
MTS, controlled by billionaire Vladimir Evtushenkov, boosted its profitability forecast yesterday as subscribers spent more on data. The company is pushing tariff plans with unlimited voice and selling cheaper smartphones to get more users to surf the Web and watch video on their handsets. Yesterday’s rally drove the ADRs to the highest valuation in almost four months, narrowing its discount to MegaFon, according to data compiled by Bloomberg.
“MTS is closing the gap to MegaFon,” Anna Kurbatova, an analyst at BCS Financial Group in Moscow, said in a phone interview yesterday. “With good performance and data some investors could start hesitating about MegaFon being the ultimate investment.”
MTS boosted its full-year margin forecast to more than 43 percent from an earlier projection (MBT:US) for about 42 percent. The shares extended this year’s rally to 12 percent to trade at almost 9.5 times estimated earnings, according to data compiled by Bloomberg. Billionaire Alisher Usmanov’s MegaFon trades at about 12 times projected profit.
MTS is “working hard” on increasing data revenue, Chief Executive Officer Andrei Dubovskov told reporters in Moscow. The company aims to cover 600 Russian cities with a faster network by the end of 2014, he said. MegaFon, which has the largest data revenue among Russian operators, agreed to acquire mobile-data operator Scartel earlier this month to gain a faster network.
Russia’s total mobile revenue climbed 9 percent to 837.4 billion rubles ($25.4 billion) last year, according to AC&M Consulting. Data revenue surged 33 percent to account for 100.7 billion rubles of that total.
Shares of MTS jumped to a five-month high of $20.82 in New York yesterday and advanced as much as 1.6 percent in Moscow today. MegaFon rose 0.4 percent in Moscow, while gaining 0.1 percent to $33.43 in London, trimming the depository receipts surge to 40 percent this year.
The Bloomberg-Russia-US Equity gauge rose 0.6 percent to 91.43. The Market Vectors Russia ETF (RSX:US), the largest exchange-traded fund dedicated to Russian equities, added 0.7 percent to $26.37. Futures contracts on the dollar-denominated RTS gauge fell 0.5 percent to 130,710. The RTS Volatility Index, which measures expected swings in stock futures, rose 1.9 percent to 23.01.
VTB Capital, the investment bank of Russia’s second-biggest lender, reiterated a buy rating for MTS with a price target of $23.00. BCS also recommends (MBT:US) buying the stock, with a price target of $23.50.
“MTS has reported solid second-quarter results,” Ivan Kim, an analyst at VTB Capital in Moscow, said in an e-mailed report today. “Management remains focused on data and has achieved good progress.”
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