MTS Income Seen Shrinking Amid Ukraine: Russia Overnight
OAO Mobile TeleSystems (MBT), Russia’s largest mobile carrier, will report net income sank for a second straight quarter amid plunging revenue from war-torn Ukraine, its biggest foreign market, according to analysts surveyed by Bloomberg.
MTS, as the Moscow-based company is also known, gained 1.6 percent to $13.61 in New York yesterday, trimming its retreat this year to 37 percent. MTS operates the second-biggest mobile phone company in Ukraine, which represented one-tenth of its revenue last year. The company reports third-quarter earnings today.
Adjusted net income at Moscow-based MTS declined 13 percent last quarter from a year ago, after sliding 18 percent in the April-June period, analyst estimates compiled by Bloomberg show. MTS’s sales in Ukraine probably slumped by almost one-third, according to UralSib Capital’s projections. The company’s net income is set to drop 16 percent this year as international sanctions targeting Russia have weakened the ruble, driving inflation higher and curtailing consumers’ purchasing power.
«MTS is suffering a great deal from the Ukraine crisis,» Konstantin Belov, analyst at UralSib in Moscow, said by phone yesterday. «The company has already stopped its operations in Crimea and is losing business in Ukraine’s eastern regions. In the current environment of slowing growth and increasing fear of stagnation, people are starting to think twice before spending, while corporations are also cutting back and tend to spend less on everything, including mobile phone bills.»
Revenue from Ukraine plunged 29 percent last quarter, UralSib estimated in a report dated Nov. 21. Data compiled by Bloomberg show that Ukraine’s portion of MTS’s sales dwindled to 8.1 percent by the end of the second quarter. The company stopped selling its services in the Black Sea peninsula of Crimea last quarter after Russian President Vladimir Putin approved the annexation of the territory from Ukraine in March.
Adjusted net income declined to 15.7 billion rubles ($350 million) in the three months through September, according to the mean of eight analyst estimates compiled by Bloomberg. That compares with 18.4 billion rubles in the year-ago quarter. MTS cut its 2014 revenue growth forecast to «at least 1 percent» in August, down from an earlier estimate of 3 to 5 percent.
The Ukraine conflict has intensified since pro-Russian rebels in the Donetsk and Luhansk regions held elections this month. NATO Secretary General Jens Stoltenberg yesterday urged Russia to pull back its forces from eastern Ukraine. Russia denies military involvement.
«There was a large drop in traffic in Donetsk and Luhansk and business was significantly impacted, especially as there was no reliable electricity to run the network,» Ivan Kim, an analyst at VTB Capital, said in a Nov. 21 preview of MTS’ third-quarter report. «Net income has likely been impacted by ruble devaluation.»
The ruble sank 14 percent in the third quarter, the worst performer among more than 170 currencies tracked by Bloomberg, amid a slump in the price of crude, Russia’s main export. The currency has lost 27 percent against the dollar in 2014.
MTS is exploring the possible sale of part of its Ukrainian phone business, a person familiar with the matter said last month. Dmitry Solodovnikov, an MTS spokesman, said at the time that the carrier had no plans to leave Ukraine. Billionaire Vladimir Evtushenkov, who controls MTS through AFK Sistema, was arrested on Sept. 16 on suspicion of money laundering and has been under house arrest since.
The Bloomberg Russia-US Equity Index rose 0.9 percent to 72.82 yesterday. Futures (VEA) on the dollar-denominated RTS index fell 0.4 percent to 106,650 in U.S. hours. United Co. Rusal, a Moscow-based aluminum producer, dropped 0.2 percent to HK$6 in Hong Kong trading at 11:52 a.m. local time.
The RTS Volatility Index, which measures anticipated swings in stock futures, increased 3.7 percent to 33.59. The Market Vectors Russia ETF (RSX), the largest U.S. exchange-traded fund tracking the nation’s companies, gained 0.2 percent to a three-week high of $21.47.
Russia’s gross domestic product grew 0.7 percent in a third quarter of deceleration, deepening its worst slowdown since a 2009 contraction. There’s a 70 percent chance of a recession in the next 12 months, according to the median economist estimate in a Bloomberg Survey. Retail sales growth stagnated last month while inflation accelerated and unemployment rose to the highest since April, according to government data.
«The market outlook on the mobile telecommunications segment in general and MTS in particular is negative,» Andrey Shenk, an analyst at Alfa Capital in Moscow, said by phone yesterday. «The segment has high risks and little growth potential.»