Rostelecom - Tele2 Valued at 6.0 2019E EV/EBITDA; No Interim Dividend
The terms of the acquisition of Tele2, which were finally revealed today via a Rostelecom press release, indicate a valuation that is above our expectations. We think that the 41% premium to MTS on 2019E EV/EBITDA and 32% on 2020E is not justified by Tele2's growth profile, as it expected to grow EBITDA 9% y-o-y in 2020E compared with 4% for MTS. The deal entails a 70% non-cash component, while we estimate that the R42 bln cash contribution will increase Rostelecom's standalone net debt/EBITDA from 2.1 to 2.5. The management has stated that it does not intend to pay an interim dividend and will include it in the final 2019 dividend, which we expect to be R5 per share. We reiterate our HOLD recommendation for Rostelecom commons and raise our target price by 21% to R95.00 per share, primarily due our incorporating the deal valuation into our model.
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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