Unlocking shareholder value (Initiation of coverage)

Timur OmoevDecember 28, 2011

We initiate analytic coverage of Kazakhstan’s national telecom operator, Kazakhtelecom, with a target price of KZT 34,600 per share and a Buy recommendation.

In the last two years, internet access and international data transit replaced mobile voice telephony as the sector’s principal growth engine and is expected to maintain this role in the next decade. Kazakhtelecom is at the forefront of this trend and aggressively pursuing the new market. The share of internet services in the company’s revenues may grow to 35% in 2011 and 45% in 2015, we estimate.

We estimate 2011 sales to grow 14%, improving the profit margin from continuing operations to almost 10%.  During 2012-2015, we expect the company’s sales to grow at about 6.5% per year.

The decision to sell next year 49% of GSM Kazakhstan, the country’s largest mobile operator that earns Kazakhtelecom over half of the consolidated net income, appears to be well-timed. Kazakhtelecom shareholders will be compensated for the loss of the incomes to the tune of $1.5bn, or almost KZT 20,000 per share. Part of the proceeds might fund further infrastructure upgrades, including a nationwide rollout of the last mile of the fiber-optic network and the transition of the company’s mobile telecom unit to LTE technology. The remainder may be paid out as a special dividend, which we estimate to be at least KZT 13,500 per common or preferred share.

The full text of the report can be found in pdf version.

Year Revenue Revenue growth EBITDA EBITDA margin Profit from continuing operations Net Debt ROE After tax ROIC EPS
  (T bn) (% yoy) (T bn) (%) (T bn) (T bn) (%) (%) (KZT/share)
2010A 152,7 6,1% 53,4 35% 6,8 24,7 3,7% 4,7% 600
2011F 169,4 10,9% 63,7 38% 15,5 29,0 7,9% 8,4% 1370
2012F 180,6 6,7% 67,9 38% 20,0 25,7 9,4% 9,7% 1770
2013F 192,6 6,6% 72,4 38% 22,5 17,0 9,7% 10,2% 1980
2014F 205,3 6,6% 77,2 38% 26,5 3,5 10,5% 10,2% 2340
Source: HF estimates

Other reports