Kcell: Too risky for this price (SELL - initiation of coverage)
We initiate coverage of Kcell with a SELL rating and a price target (PT) of KZT 1,485/share (USD 3.3/share), implying 38% downside. We appreciate the Kazakh mobile market’s healthy pricing environment and growing ARPU, driven by surging data consumption; however, on the other hand, we recognise a political risk for the evolution of a market dominated by a state-controlled player. We expect Kcell to generate a strong c.6% 2019-21E adjusted EBITDA CAGR; however, due to its capex needs (related to the integration with Kazakhtelecom), this may not necessarily translate into high FCF (a c.5.6% FCF yield in 2020-21E vs. its peers’ 8.5%) nor dividend payouts (a 3.9% 2020-21E dividend yield vs. its peers’ 5.1% median). Therefore, we believe the mid-term outlook for Kcell does not justify its very expensive valuation of 8.0-7.4x 2020-21E EV/EBITDAs, at 75-69% premiums vs. its peers.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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