Kcell: attractively-valued frontier exposure (upgraded to BUY)
We have upgraded our rating on Kcell to BUY (from Sell) and cut our price target (PT) to KZT 1,712/share (from KZT 2,231/share), implying 41% upside potential. In the LTM, Kcell’s share price has dropped 51%, following the turbulence surrounding the company’s delisting from the LSE, material share supply (Kazakhtelecom sold a 24% stake in October 2021), the geopolitical crisis (social unrest in Kazakhstan in 1Q22, war in Ukraine) and growing interest rates affecting the valuation (central bank rate increased to 14%). However, we have turned positive on Kcell, as we believe that the derating was driven mainly by trading/macro factors, while Kcell’s performance remains strong fundamentally (we expect a 2021-24E EBITDA CAGR of 11%). Moreover, currently, after the derating, Kcell turned from being one of the priciest telcos under our coverage to the cheapest one, trading at 2022-23E EV/EBITDAs of 2.7-2.3x, on our estimates, 42-50% discounts vs. its peers. In the end, we believe that, if Kazakhstan remains politically neutral, thanks to its decent macro outlook, the country might benefit from inflows of funds from EM/frontier investors, looking for a substitute for Russia.
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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