Inside Wall Street: Why More U.S. Analysts Are Dialing Russia's MBT

Gene Marcial's Inside Wall Street
Gene Marcial's Inside Wall Street

Not many Russian stocks are high on Wall Street's fave list, so you probably haven't heard of Mobile TeleSystems (MBT). It's been listed on the New York Stock Exchange for about 10 years, yet few investors are aware that it's one of the few promising stock plays on the Russian economy's potential snapback.

Surprisingly, Wall Street is generally high on the stock, with 16 of 23 analysts recommending the shares as a buy. And several large institutional investors, including Lazard Asset Management and JPMorgan Asset Management, already have stakes in the company. Of late, the stock has been edging higher, from a 52-week low of $17 per ADR to $23. (One American Depositary Receipt equals two common shares.)

What exactly is the Moscow-based company's investment appeal? As one of the few Russian companies to trade in the U.S., MBT is well positioned to hit paydirt when the Russian economy starts to recover. One reason: It's the 800-pound gorilla in the fast-growing mobile-phone business in Russia, and in the CIS (Commonwealth of Independent States), that includes Ukraine, Belarus, Uzbekistan, Armenia and Turkmenistan.

More Than Just Cell Phones

Russia is MBT's principal market, generating 75% of its revenues from its operations in 83 of the country's 85 regions. With its subscriber base of just 102 million customers, MBT has lots of room to grow in a nation of 225 million.

Cell phones aren't the only products powering MBT's strong sales. With its acquisition in October 2009 of a controlling stake in Comstar, a Russian supplier of integrated telecom products and services, MBT became a major a provider as well of wireline phone systems. That should expand MBT's range of services and markets because Comstar enables it to deliver so-called bundled phone services to customers.

Indeed, MBT is geared up to benefit from a rebound in corporate spending as the Russian economy begins to recover and from the continued rapid increase in mobile data traffic in Russia, says Ari Bensinger, analyst at Standard & Poor's. Although 2009 was a bad year -- MBT sales declined 9% -- the analyst expects sales to jump some 25% in 2010, to $1 billion. Bensinger says the growth reflects healthy subscriber growth, increased usage rates and the benefit of roughly $1.5 billion of additional sales from the Comstar acquisition.

Bensinger concedes, however, that there is concern about "instability of the Russian marketplace" because of the economy's sensitivity to changes in commodity prices and "possible government interference in business." That's prompting him to rate the stock a hold. Nonetheless, Bensinger is upbeat on MBT's earnings outlook, forecasting that earnings will rise to $1.77 a share in 2010, up from 2009's $1.06.

"Quite Positive" Outlook

Thus far, trends have been improving at MBT, which leads the Russian mobile-phone market with a 35% share. Herve Drouet, analyst at HSBC Global Research, notes that the company posted solid second-quarter results that beat analysts' consensus forecasts. The improving usage and revenues per user at MBT are encouraging, he says.

Drouet notes that a majority of revenues come from fees for various services, including usage, interconnect, value-added, roaming and connection, as well as from sales of handsets and accessories. .

Sponsored Links

"The outlook is quite positive with the company improving its guidance in revenue growth to 10% (from mid-single digits) in local currencies in 2010," says Drouet. This reflects, adds the analyst, an improving tone on the outlook, with MBT noting a "macro-economic improvement in Russia and CIS."

In time, MBT will be looking for opportunities outside of Russia and the CIS to expand its markets, "but right now we are concentrating on serving and satisfying the fast-growing telecom needs in the Russian and CIS marketplace," says Josh Tulgan, MBT's chief investor relations officer.

It isn't often that Wall Street comes up with an upbeat appraisal of a Moscow-based company, and Mobile TeleSystems may be a good call.

Get info on stocks mentioned in this article: