Vimpel Communications: Compelling Russian Play Poised for Growth

In the world of investing, Russia seems to get ignored. What was once one of the most powerful countries in the world as the U.S.S.R., has been reduced to a third world power. Constant political friction and instability make this a skeptical choice by many, but it shouldn't be.

Russia is well placed in the world of inflation as they are an area of plentiful resources, including the world's second leading producer of oil behind Saudi Arabia. This influx of money flowing into the country has been underestimated. With Europe's outsourcing of manufacuring into countries like Poland and Hungary, what was once very poor, is now developing a middle class. This middle class has developed into a base of customers for many of the existing Russian companies.

One company that is compelling is Vimpel Communications (VIP). This telecomunications company has had a nice run and I believe the valuation is compelling going into earnings. Russia's current ten year economic expansion looks even better this year with estimates of 6.5% growth in GDP, after expanding 7.6% last year. The RSX, has returned 50% this year and has a 4% position in VIP, the second largest telecom provider in Russia.

VIP can be bought at a discount as there was selling going into earnings, and as of noon central time the stock was down 2.5%. Other than that, its trend is bullish, the stock made a reversal in May as the stock bounced off of support at $30 then made an aggressive move up to $35. On May 7th it experienced a double top breakout and the current trend points to a $52 price target. Even at this price it still seems cheap as it is still down from December of 2007 where it hit an all time high of $45.48. The current PE ratio is 23.79 and forward PE is compelling at 13.80. The five year peg ratio is .81.

Earnings estimates with this company have been beaten two out of the last four quarters, so I would be careful here, but the growth estimates make this company very cheap, even on a miss. Current quarter estimates place growth at 118.5% year over year. Full year estimates have the company growing 41%. Revenue estimates for the quarter and full year are estimated to have growth of 39.8% and 40.4% respectively.

Remember, this company will do better as money flows into Russia from their broad commodities exposure, so inflation actually benefits this country and will continue to as the world fights it in upcoming months. They also have large resources of natural gas and coal which will help to stimulate growth throughout 2008. Russia is a good investment from a long position as they are poised to be one of the world's better economies for the forseeable future.

Disclosure: None

Comments

[MountainFist]

Nice article! I have done very well with both MICC & VIP in the past.

[MichaelFilloon(legmaker)]

Thank you Mountain Fist, I just had bad timing as they have been down since earnings release, but are a good long term story.