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ATON - Daily Dashboard - Aug 2, 2011.



- Sberbank Reiterates Plans to Raise Dividends

Special Situations and Small Caps

- Siemens to Sell 25% Stake in Power Machines to Mordashov - BuyOut and SqueezeOut Possible

Telecoms and Media

- IBS Group FY10 Conference Call: Key Takeaways

- June Mobile Statistics: Lower Connections - Higher 2Q11 Profitability?

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- Financials. Kommersant reports today (2 Aug) that on 28 Apr, 10 days after its IPO, Nomos Bank assumed a RUB4bn loan that developer PIK Group had obtained from Otkritie Bank. Otkritie extended the loan in Feb 2011 to allow PIK to repay its debts to Nomos Bank (previously, Nomos had bought PIK's debt from VEB, which PIK had difficulty repaying, first to VEB and then to Nomos). The report suggests that Nomos essentially offloaded a large problem loan for a few months during its preIPO balance sheet cleaning and has now taken it back. We believe the news is negative for Nomos Bank.

- Media. Russia's advertising market grew by 28% YoY to RUB121122bn in 1H11, in line with YoY growth in 1Q11,

Kommersant reports today (2 Aug). The TV segment gained 29% YoY (in line with 1Q11 growth), while the internet media segment added 48% YoY (60% YoY in 1Q11) and internet contextual advertising rose 62% YoY (vs 60% YoY in 1Q11). These statistics show almost no deceleration in the pace of revenue growth, which we treat as positive for the stocks of CTC Media, Yandex, MAIL.RU, RBC and O2TV.

- Oil and Gas. According to Kommersant today (2 Aug), Germany's E.On will take Gazprom to arbitration court in an attempt to lower the price it pays for gas. No details on the venue or E.On's precise demands were provided. This is the second time a European company has challenged Gazprom over gas prices in court: in July, Italy's Edison won a similar dispute and gained a concession from Gazprom worth an estimated EUR200mn. Gazprom supplies Edison about 2bcm per year while it provides 1520bcm to E.On. Any concessions to the latter on gas prices could have a major negative impact on Gazprom's financials, making the news negative for its shares. In the past, Gazprom has been able to avoid court disputes by providing discounts following negotiations with customers. We believe the actions of Edison and E.On could encourage other European companies to vie for lower gas prices in court.



On Monday, our markets began with a rally but the second half of the day was dominated by declining European markets and dismal US statistics. At the close, MICEX had firmed 1.2% and the RTS edged up 1.1% (main session), where NOVATEK (3.9%), Bank St Petersburg (3.1%) and Bank Vozrozhdenie (3.1%) were the key performers. Commodity prices reacted negatively to US ISM Manufacturing data and Brent futures for September delivery have slipped 0.3%, trading at $116.1/bblI3/4 the LMEX dropped 1.6% with copper, nickel and lead each shedding nearly 1.8%.


The S&P 500 fell 0.4% and the Euro Stoxx 50 slipped 2.9% following the release of disappointing US ISM Manufacturing

Index data, which outweighed positive sentiments following the House of Representatives' approval of an increase in the US debt ceiling. Moreover, many investors consider the proposed measure as only a temporary solution. In Europe utilities drove bourses down while in the US the segment fared better than the overall market. In advanced Asia this morning the Nikkei is down 1.2% while the Hang Seng has slipped 0.7%. US personal income and spending data is set for release today.


S&P 500. Bestperforming sectors: Telecommunications, UtilitiesI3/4 Worstperforming sectors: Healthcare, Consumer Discretionary


The MSCI EM Index advanced only 0.9% overall after briefly spiking 1.5% on positive US political developments. South Korea and Russia closed the day in positive territory, but China, India and Brazil were marginally in the red. This morning, Emerging Asia is declining with China dropping 1.6% and South Korea sinking 2.4%.


Sberbank Reiterates Plans to Raise Dividends

Yesterday (1 Aug) Sberbank's supervisory board approved the bank's new dividend policy which entails a dividend payout increase to 20% of IFRSbased net income within three years.

These plans have been mentioned by Sberbank's top management on several previous occasions, so the news was largely expected.

Last year Sberbank paid out 12% of RASbased earnings in dividends (which for SBER closely resembles its IFRS bottom line) after allocating 10% of net income for these payouts in prior years. We anticipate that next year's payout ratio should reach 15%, which, if we assume that Sberbank's 2H11 profitability remains at the same level as in 1H11, would result in a dividend yield of 2.2% on the common shares and 3.7% on the prefs, based on current prices.

Bottom line

The news is just marginally positive for Sberbank, in our view, as plans to gradually increase dividend payments have been announced before. Currently, we prefer Sberbank's common shares to the prefs given that the latter trade at a 19% discount to the commons vs the historical average of 25%.

Siemens to Sell 25% Stake in Power Machines to Mordashov - BuyOut and SqueezeOut Possible

Yesterday (1 Aug) Power Machines announced that Siemens will sell its 25% stake in the company to Highstat Ltd, a structure owned by Alexei Mordashov who ultimately controls Power Machines. The price of the stake was not disclosed. Additionally, Siemens and Power Machines are reportedly planning to set up a JV to produce highoutput gas turbines that would be 65% controlled by Siemens, and 35% by Power Machines.

Bottom line

A voluntary buyout offer is now possible: once the deal is completed, Highstat Ltd will control 95.3% (70.3% + 25.0%) of Power Machines' capital. According to Russian law, any party that consolidates 75% of a company's capital must organise a voluntary buyout of minorities. The voluntary buyout price is the higher of the weighted average share price for the previous six months or the price paid when 75% of the shares were consolidated. According to Bloomberg the weighted average price of Power Machines is RUB9.58/share or 17% higher than the current price (RUB8.17).

The controlling shareholder also has the right to organise a squeezeout of minorities within six months of the voluntary buyout if he controls more than 95% of the company's capital. The squeezeout price is the acquisition price or the preceding voluntary buyout price, whichever is higher.

From a fundamental point of view, Siemens' departure from the shareholding structure is neutral for Power Machines, as Siemens played almost no part in its management.


IBS Group FY10 Conference Call: Key Takeaways

IBS Group reported its 2010 audited US GAAP results on Friday (29 July) which were in line with preliminary numbers released on 1 June. Revenue rose by 30% YoY to $656mn, while EBITDA increased 37% to $47.5mnI3/4 EBITDA margin reached 7.2% (up 0.3 ppt YoY). The most significant EBITDA growth was recorded by its software division Luxoft (57% YoY), implying an EBITDA margin of 18.6%. Net debt increased by 16% YoY to $31.7mn, pointing to a net debt/EBITDA ratio at 0.7x. A conference call was held yesterday (1 Aug). Key takeaways include:

- IT services should expand in line with the market in 2011 (IT agency IDC expects this segment to grow at a 19.4% CAGR in 201015 in dollar terms). EBITDA margin is expected at 6%.

- Luxoft should beat the market with 30% annual revenue growth in 201112, while its EBITDA margin is expected to stay at the current level (18.6%).

- For 2011E, management guides for organic revenue growth of 2527% YoY to $805820mn

- The company plans to pay dividends of $0.20 per GDR (a dividend yield of about 0.9%)

- The online software delivery division (9% of IBS Group's revenues in 2010I3/4 EBITDA of $ 1.2mn) could be deconsolidated.

Bottom line

The results look strong, but were largely expected as the company had already posted its FY10 operational numbers.

In our view, IBS Group is set to benefit strongly from the economic recovery and state support of the IT sector. The software development segment showed the strongest revenue growth and profitability and we believe it will continue to boost the company's financials.

June Mobile Statistics: Lower Connections - Higher 2Q11 Profitability?

According to AC&MConsulting (1 Aug), Russian mobile penetration rose by 0.4 ppt MoM to 153.4% in June. VimpelCom accounted for 58.5% of Russian net adds if the NTC acquisition is included. MegaFon followed with 28.8% of net adds, while MTS's subscriber base diminished marginally.

MTS significantly reduced its marketing activity in 2Q11: its subscriber base in Russia declined by 0.5% to 71mn, while VimpelCom's (adjusting for the NTC acquisition) gained 2.3% to 54.3mn and MegaFon's increased by 2.0% to 57.6mn.

Ukrainian penetration increased by 0.9 ppt MoM to 113.8% on the back of summer seasonality. Astelit took 35.7% of the net adds while MTS and VimpelCom gained 25.3% and 23.7%, respectively.

Bottom line

The net connections picture is not completely clear without churn rate numbers, which are currently unavailable. That said, ACM's statistics confirm our view that MTS has reduced its marketing activity and could show a profitability recovery in 2Q11, which would be taken positively by the market, in our view. We recall the market's concerns over a possible profitability squeeze among Russian mobile companies caused by increased competition in 2010.

For VimpelCom this positive trend could be offset by its need to win back market share by taking the lion's portion of new subscriber additions (it dominated 2Q11 net adds see chart below). This likely means continued high subscriber acquisition costs and lower tariffs, which will put pressure on gross margin.

Aton OOO (LLC)

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Publication:Russian Banks and Brokers Reports
Date:Aug 2, 2011
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