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Articles & publications
18.05.2010
Pricy subsidiaries: RTO shares expected to soar over 50% in value after the mergerRBC daily, Elizaveta Sergina
The shares of the regional telecommunications companies controlled by Svyazinvest could gain as much as 50% in value once the merger is complete, according to analysts at Rye, Man & Gor Securities. RTO shares are heavily undervalued by the market, whereas Rostelecom is trading nearly at fair value, experts at this brokerage believe.
The merged Rostelecom operator would be trading at about a 30% discount relative to developed and developing markets, according to the expert estimates of Rye, Man & Gor Securities. “We estimate the company’s market cap at approximately $15 bln of which 40% could go to potential free float, with such an outlook expected to shape up as early as 2011 as the merged operator could be listed and traded on international stock exchanges, pushing up its value even higher”, RMG’s report said.
According to analysts, the fair value of one common share of the merged Rostelecom should be $4.10. This is slightly higher than the current value of Rostelecom’s shares ($3.60), but far exceeds the current prices of RTO prices when recalculated as Rostelecom shares ($2.80-3.00 depending on the swap ratios). Upside potential falls within the range of 44-51% for common shares and 22-46% for the preferred shares of RTOs. “We expect the upside potential for common and preferred shares to narrow after the share buyback has been completed”, the report goes on to say.
The common shares of Rostelecom also hold upside potential, analysts claim. These securities could be the subject of speculative interest as a result of a lengthy decline in share prices, which gathered momentum after the publication of swap ratios and the negative earnings reports released by companies in the first quarter of 2010, the analyst believes. “Over the last month alone, shares have lost more than 20% of their value and we recommend buying into them on local lows”, RMG analysts note.
According to estimates by Veles Capital, the upside potential of regional telecommunications operators amounts to about 50%, according to the company’s analyst Ilya Fedotov. “In our opinion, the synergies created by the merger could provide powerful impetus for the company’s future development. As for Rostelecom, these shares seem to be trading around fair value, Mr. Fedotov claims. According to Gazprombank analyst Anna Kurbatova, the shares of all of the companies controlled by the state holding “undoubtedly hold upside potential”. “However, it is still hard to say how strong it will be. The upside potential depends on many factors, not least of which is whether the Far East operator will be included in the merged operator, and also how the company’s cellular and fixed-line business shapes up. There is still no final estimate of the synergy to be expected from the merger process”, Mr. Kurbatova went on to say.
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