By Richard Rittorno
As we mentioned in our recent post, Russia’s latest round of upheaval-spawned volatility created plenty of value opportunities in a list of the country’s biggest companies. Traders need look no farther than VimpelCom (VIP), one of the dominant players in Russia’s telecommunications industry.
VimpelCom Ltd. is a group of integrated telecommunications services operators.
VIP offers a range of wireless, landline, and broadband services in Russia, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Vietnam, Cambodia, Laos, Algeria, Bangladesh, Pakistan, Burundi, Zimbabwe, Namibia, Central African Republic and Italy, and has an indirect equity shareholding in Globalive Wireless Canada (Wind Mobile).
VimpelCom provides services under the Beeline, Kyivstar, djuice, Wind, Infostrada Mobilink, Leo, Banglalink, Telecel and Djezzy brands. As of December 31, 2010, it had 181 million mobile subscribers. It operates in five business units: Europe and North America, Russia, Ukraine, the Commonwealth of Independent States (CIS), and Africa and Asia.
In March 2011, it acquired 74.1% share of Millicom International Cellular S.A.’s operations in Laos. In April 2011, it acquired 51.7% of Orascom Telecom Holding S.A.E. and 100% of WIND Telecomunicazioni S.p.A.
Overall Valuation: VIP is in the communications services industry and has positive earnings, so the price to sales ratio is less instructive than the PEG, P/E or price to book ratio. Therefore, VIP seems inexpensive with a PEG value of 0.9053, below the communications services industry median PEG of 1.58. This valuation is also supported by a P/E of 10.8179, which is well below the industry median of 12.48.
Profitability: VIP is one of the more profitable companies in the communications services industry. Its gross and operating margins are among the strongest of any peer while the net margin is above the industry median.
Yield/Dividend: VIP pays an annual dividend of $0.79 and, at its current price of $11.10, yields 7.09% — a level that is in line with the communications services industry average but well above that of the S&P 500, which currently yields 2.20%. Additionally, this company is in the minority, since most others in this industry do not pay any dividend at all.
Financial Strength: VIP’s debt to total capital ratio, at 59.19%, is in line with the communications services industry’s norm despite its increase over the last year. With an interest coverage ratio of 1.82 and a quick ratio of 1.09, the company should be able to comfortably repay its debt.
VIP was in a downturn from May 2011 until hitting a 52-week low on October 4, at which point the price action reversed. Since, then, VIP has made higher highs and higher lows, with the last high forming on December 1, and now appears to be in the process of forming another low.
However, Wednesday's price action has broken the upper trendline. The fuel gauge — the blue dotted line below the chart nearby — is continuing lower, suggesting weak buying. The 150-day moving average (green dotted line) and T3 Tilson (blue dotted line) are at an impasse after VIP failed to close above the 150-day moving average.
VIP’s chart is painting bearish sentiment at the current moment suggesting traders may have the ability to enter at better position in the near future.
A few possible scenarios:
* VIP closes below the upper trendline, suggesting that price may seek out support at either the 50% or 61.8% Fibonacci support levels.
* Price breaks but holds trendline support. If so, VIP could form another higher low and look toward the 18% Fibonacci extension at $12.37, possibly resting before completing the Fibonacci swing at 61.8% extension.
* The 150-day moving average could cross below the T3 Tilson, presenting a negative price move.
Summary: Traders may want to consider waiting to see what transpires both on the technical front and the political unrest currently inflicting Russia. Look for entry points around the 61.8% Fibonacci support level.