Mobile TeleSystems Holds Dividend Yield At More Than 10%

| About: Mobile TeleSystems (MBT)

Summary

MBT pays dividends 11.99 RUB per share. The record date is scheduled for 14 October 2016.

2Q2016 seems to be better than expectations. MBT will publish its financial report on the 18-th of August, 2016.

Still there are no reasons for the aims of management for 2016 not to be reached.

The Mobile TeleSystems' (NYSE:MBT) Board of Directors has recommended to direct 23.96 bln RUB to dividends for the 1H2016. Such amount means that you get 11.99 RUB per share ( 23.98 RUB per ADR or $0.36 per ADR while exchange rate is 66.4 RUB/USD). The Extraordinary General Meeting of shareholders will be held on September 30, 2016; the record date is scheduled for 14 October 2016.

So the total dividend for 2016 can amount 26 RUB per share. This is on the highest fringe of the declared target range of dividend payments in the amount of 25-26 RUB per share, as well as much higher than the consensus forecast of analysts.

Well, it appears that the company remains to be the leader of Russian tele-market not only in share of revenue, but in the size of dividend yield (which still is more than 10% per annum in RUB).

Some days ago, the major competitor of MTS - Megafon - has published its financial results for 2Q2016. According to the financial statement the revenue of Megafon has raised for 3,4% (by the 2Q2015). MTS will present its results later, on the 18-th of August. And, having the competitors' financial results on the background, it has to be quite strong.

As for me, I expect the growth of revenue to 109.1 bln RUB (+6.2% comparing 2Q2015) because of the stabilization of the ruble and increasing consumer demand. The main drivers of growth remain to be the sales of phones and equipment. Even if this segment doesn't generate any cashflows for MTS it is necessary for maintaining and increasing the subscriber base, as well as the preservation of loyalty in the eyes of the consumer. Generally, the Management of Mobile TeleSystems oriented to revenue growth of 4% year on year, so now we can note that the company outstrips its own schedule.

Quarterly dynamics of financial indicators of Mobile TeleSystems

Click to enlarge

The low returns from retail business along with the growing competition on the Russian market has already affected the EBIT and EBITDA margin. Apparently, the EBITDA margin in the region of 45-50% of on the Russian market in the past. For the second quarter, I expect that EBITDA Mobile TeleSystems reached 42 billion RUB (v decrease of 1.7% QtoQ, which is better than that of Megafon (-12.8%)). Let me remind you: the Management of MTS forecasted the EBITDA changes in the range of -1 to +2% by the end of the year, and there still is every reason that this result will be achieved. The second half of a year seems to be better than the first for the mobile operators.

For now the dynamics of the whole market is higher than the expectations of the beginning of 2016. There is a vector of stabilization of the Russian economy, but it is too early to speak about the new positive trend.

The risks of a new round of devaluation against the background of falling oil prices on 20% are saved. Also, has appeared the risk with the adoption of the package of laws made by Yarovaya (the risk is described in detail in this article). I'm not inclined to consider it as serious as it is described by the Russian media and many experts. I'm also not ready to build any forecasts regarding this law, as it has pretty much blind spots. So all of this is nothing more than guesswork.

The current dividend yield of MTS shares is 4.8% for the October cut-off and more than 10% for the year. In my view, the stock is trading close to its fundamental values, which means that some significant growth of stock price is not really expected. Yes, you can fairly argue to me that I have missed the growth of shares from $ 7.4 to $ 8.8 per ADR, but the bulk of this growth was the strengthening of the ruble. The share in RUB still continues to be traded in the range of 240-250 RUB. If to include it in your portfolio, then it is only for the sake of dividends and looking back on the ruble risks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.