Rostelecom - Tele2 Price Looks Fair
Tele2 might be valued at a 2019E EV/EBITDA of 3.8 (or 4.2 if we assume net debt/EBITDA of 2.3 post-IFRS 16 effect), based on our assumptions following an article that appeared in Kommersant today. That compares with 3.5 for Rostelecom and 4.2 for MTS. The acquisition is likely to be a no-cash deal for Rostelecom. The issuance of 708 mln common shares implies 27% dilution of the commons (or 31% excluding treasury shares as we use in our DCF valuation). All in all, we think the news is neutral and was largely expected. The price of Tele2 looks fair. Although Tele2's multiple is higher than Rostelecom's, Tele2 is growing faster and has more growth upside. We reiterate our HOLD rating and R78.34 target price for Rostelecom common shares.
Rostelecom PJSC provides communication services (including local, intra-zone, long-distance domestic and international fixed-line telephone services, mobile services), data transmission, Internet, Pay TV, VPN and data centers services, rent of communication channels and radio communication services in the territory of Russian Federation. Co. operates the main intercity network and the international telecommunications gateways of the Russian Federation, carrying voice and data traffic that originates in its own network and other national and international operators' networks to other national and international operators for termination.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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