What to expect from the new shares of "Rostelecom»

"Rostelecom" - Russia's largest telecommunications company, created as a result of accession to the operator of the same name "Dagsvyazinform" and seven regional telecom companies, "CenterTelecom", "Sibirtelecom", "Far East Telecom", "VolgaTelecom", "North-West Telecom "" Uralsvyazinform "and UTC. Last summer, their meeting approved the conversion coefficients into ordinary shares of securities of "Rostelecom". Minority shareholders, who voted against the merger could bring their bags to buy. This right owners took advantage of securities equivalent to 2.7% of ordinary securities joint statement, as well as the owners of 29% of preferred shares of "old" "Rostelecom". In mid-February, Federal Financial Markets Service registered the additional share issues, and April 1 Incorporation have been made about the termination of the activities of all the merging companies. Thus, the main stages of large-scale and long-awaited deal completed. According to the estimates of management, report on the issue will be recorded in early May, and at the same exchange trading to begin the new shares. The existing common and preferred securities of "Rostelecom" treated as usual. Meanwhile, the transformation of ownership structures that are not complete. State via VEB, ASV and "Svyazinvest" owns 53% of the ordinary shares of "Rostelecom", and to the operator - 25% plus 1 share of "Svyazinvest". Have to find a way to eliminate cross-ownership, either by merger or by selling the unit package, "Svyazinvest" one of the state institutions. In February, "Rostelecom" involving "Uralsvyazinform" and "North-West Telecom" has acquired almost 72% of the "National Telecommunications' (STC) - the largest independent operator of cable television and data transmission. In view of its customer base "Rostelecom" now serves 35 million households, including 13 million subscribers of mobile services, 7.4 million Internet users and 5.5 million cable TV subscribers. The company offers a wide range of licenses and supports the work of 500 thousand km of trunk lines and 2.5 million km of local access networks. The total capacity of client Internet connections of "Rostelecom" over 1 Tbit / sec. In accordance with the five-year strategy of "Rostelecom" will be developed as a generic operator, providing services to retail and corporate customers, other telecommunications companies. Client will remain and the state. Thus, in the auctions and tenders in 2011, contracts with government customers in more than $ 6 billion rubles. Growth factors 1. Synergistic effect of new "Rostelecom" will be able to provide a full range of telecommunications services on a national scale. Eliminated competition between the companies involved in the association. Displays and the ability to optimize costs. In addition, the synergistic effect should manifest itself in the segment of mobile business after the transition to a single asset management cell "Rostelecom" and "Sky Link", which is owned 100% of "Svyazinvest". 2. Listing in London Another consequence of the reorganization of "Rostelecom" will serve as a sharp increase in the liquidity of its shares, which in June to enter into the estimated base of the family of stock indexes MSCI. Additional attract the attention of investors of securities combined output of "Rostelecom" on the London Stock Exchange later this year. In the form of GDR or ADR will handle up to 25% of the share capital. 3. Development of new services in the past year, revenue from new and additional services "Rostelecom", including the implementation of the project "Electronic Government" increased by 13% to 23.7 billion rubles, or almost 38% of revenue compared to 32% a year earlier. Similar trends were observed among operators affiliated to "Rostelecom". Proceeds from new directions will replace lost income due to reduced demand for traditional telephony. Factors reducing 1. Inadequate assessment of the combined company paper market predicting a period of heightened volatility. Today's quote of "Rostelecom" due to lack of liquidity is unlikely to reflect the objective value of the operator, write, for example, analysts 'Troika Dialog'. The situation will change when the free-float «Rostelecom" will grow from 9 to 44%. This may be accompanied by falling prices, although optimism about the completion of a major deal, of course, will support the shares. 2. The deterioration of financial performance over the last three years "old" "Rostelecom" showed disappointing dynamics of revenues and profitability, mainly due to the activity of competitors, especially mobile operators, who pulls long-distance traffic in their networks. So, at the end of 2010 according to IFRS revenue declined by 4% to 63 billion rubles, OIBDA margin lost 16% to 10.5 billion rubles. OIBDA margin decreased by 2.3 percentage points to 16.8%. 3. High CAPEX forecast by management, capital expenditures combined operator in the next 4-5 years will reach 20-22% of revenue (not including the possible additional costs for the construction of networks, 4G). Companies will have to find sources of financing capital expenditure, possibly increasing the debt burden. Analysts' forecasts investment company, bank fair price per share, rubles. Troika Dialog 138.1 115.6 TCB Capital Bank Moscow Alfa Bank 115.6 209.7 149,4 UBS 145,2 Uralsib consensus forecast of 145.6 price on MICEX 4/13/11 169.5 Potential -14%