Rostelecom (MCX: RTKM) - company group, specialized in communication services, media and digital technologies. By the end of 2020, the largest fixed telephony operator in Russia. The company came out on top in terms of revenue among Russian telecommunications companies, overtaking the closest competitor in terms of revenue in the segment — MTS.
Despite, that the securities of Rostelecom are conditionally not related to blue chips, they have sufficient liquidity to do so, for the Moscow Exchange to include them in the MICEX index, as well as the Broad Market and Telecommunications indices. Ordinary shares of the group of companies listed on the New York Stock Exchange.
About company
General characteristics. History of the group of companies. Rostelecom is Russia's first national fixed-line telephony operator, created in 1993 to replace the Intertelecom inherited from the collapsed USSR, original name - Sovtelecom. In 1994, Rostelecom was incorporated into the Svyazinvest Corporation., which was completely absorbed in 2013.
IN 2006 Diversification of services began: in addition to the function of a fixed telephony operator, the company became the backbone Internet provider. In 2009, the company launched the portal of state and municipal services "Gosuslugi". Since 2014, Rostelecom has received a new status as an operator of universal communication services throughout the Russian Federation and the only executor of the state program to eliminate the digital divide, since 2018 - the status of the only Internet provider for state and municipal medical institutions, which the company was until 2019.
also in 2018 the company was appointed by the Government of the Russian Federation as the operator of the Unified Biometric System,since that time, it has offered a number of new digital services. Since 2000 there have been takeovers by a group of companies of fixed telephone operators, in particular intercity, international and regional, hereinafter referred to as content delivery services, data centers, etc.. P., then - mobile operators, cable TV operators. A landmark event was consolidation in 2020 100% shares of the mobile operator "Tele-2 Russia".
The initial public offering of ordinary and preferred shares of the company took place in 1993. Public trading on the MICEX and RTS began in 1997.
Composition of the group of companies. PJSC Rostelecom controls a significant number of companies to one degree or another.
PJSC Rostelecom directly participates in the capital of 42 commercial organizations, indirectly through other companies - in the capital of 164 commercial organizations, and also participates in 25 non-profit organizations. From companies, in which the group participates directly, generate the most revenue in descending order:
- Storage Center.
- «Bashinformsvyaz».
- «RTComm-ru».
- Rostelecom - retail systems.
- "RT Labs".
The most profitable business segment now is data processing and cloud services. Second place for Bashinformsvyaz, seemingly, due to the extensive market coverage: it is the main telephony and internet operator, almost a monopoly in the four million Bashkortostan, operating also in the telecommunications markets of Moscow, Moscow suburbs, Novosibirsk, Togliatti and Samara.
Shareholders. Shares of PJSC, in addition to free-float, owned by legal entities. The largest share belongs to the federal agency "Rosimushchestvo", the second state shareholder is the State Development Corporation VEB.RF, the other two are private companies.
The key figures of the group of companies are General Director Mikhail Oseevsky and Chairman of the Board of Directors Sergey Ivanov. But, as often happens in companies with significant state capital, share of Rostelecom shares, owned by top managers, is almost within the statistical error.
Shares of Rostelecom shareholders
| Rosimushchestvo | 38,2% |
| WEB | 3,4% |
| VTB Bank | 8,4% |
| Telecom Investments | 21,0% |
| Free-float | 29,0% |
38,2%
What he earns
Revenue structure from various services. Services lead by revenue growth in 2020, which are classified as “other” in the reporting of the group of companies. These are mostly additional services., including as part of the package of home Internet and television "Online". Includes cloud games, install parental controls, computer help, temporary blocking.
It is unlikely that at this moment you can see anything positive for the company., since some of these services are not core for it at all and the growth in sales of such services is not included in its development strategy. Another category of "other services" of Rostelecom may cause negative associations among investors, for example, after a lawsuit over the imposition of these services in the Volgograd region.
The rest of the picture is quite logical.: digital services and mobile communications show increasing profitability, while fixed telephony is the only category of service, which showed its decline. This is in line with the general trend of “mobilization” of communications and the growing popularity of digital technologies., which began in the tenth years in Russia, and in the world. The same can be said about the predominance of the share of mobile communications in the revenue structure..
Revenue structure of PJSC Rostelecom in 2019 and 2020, billion rubles
| 2019 | 2020 | Δ 2020 | |
|---|---|---|---|
| Other services | 21,1 | 34,9 | 65,0% |
| Digital Services | 48,5 | 77,3 | 59,5% |
| Mobile communication | 153,8 | 177,0 | 15,1% |
| Wholesale services | 69,7 | 74,8 | 7,3% |
| Fixed broadband access | 84,5 | 90,4 | 7,0% |
| TV | 37,4 | 38,0 | 1,7% |
| Telephony | 60,8 | 54,6 | −10,2% |
| Total revenue | 475,8 | 546,9 | 15,0% |
The significant growth of digital services can be considered a positive factor for the investment attractiveness of the company.. This includes smart homes, data centers, cloud solutions, security solutions, additional school education, etc.. P. The segment's rapid growth is in line with Rostelecom's strategy to transform from a telecommunications company into an IT company.
Service revenue, provided by large packages to legal entities, rose below average. There is nothing good here., since these services constitute a significant share of the range of companies of the group. To them, for example, virtual PBXs, SMS advertising and more. The low growth of TV services is quite expected, Considering, that modern consumers spend more time on the Internet, than on a TV screen.
In the first half of 2021, compared to the same period of the previous year, the trend was similar - with the only difference, that such a strong growth was not observed: the decline in revenue from fixed telephony was even greater, than in 2020.
Revenue structure of PJSC Rostelecom in the first half of 2020 and 2021, billion rubles
| 1п2020 | 1п2021 | The change | |
|---|---|---|---|
| Other services | 10,7 | 14,2 | 33,0% |
| Digital Services | 27,5 | 32,0 | 16,4% |
| Mobile communication | 83,9 | 94 | 12,1% |
| Fixed broadband access | 44,2 | 47,8 | 8,3% |
| TV | 18,8 | 19,9 | 5,8% |
| Wholesale services | 36,0 | 37,6 | 4,5% |
| Telephony | 27,9 | 25,0 | −10,3% |
| Total revenue | 248,9 | 270,5 | 8,7% |
If we structure the revenue by types of consumers, then a significant percentage of services can be considered a positive factor, provided to legal entities and under government orders: 37%, as of the end of the first half of 2021. The group of companies develops within the framework of its strategy, and it has priority in many government IT projects.
Structure of consumers:
- B2C — 48%,
- B2B and B2G 37%,
- B2O — 15%.
Financial indicators of the group of companies. At the end of 2020, net profit showed the largest growth among PJSC financial indicators. However, OIBDA margin and free cash flow fell, and this is a warning sign, which does not inspire investors with optimism. A fall could mean a risk of that., that some plans in the group's overall strategy may be delayed or canceled altogether: not enough free funds to invest. Capital expenditures also did not show significant growth, from which similar conclusions can be drawn.
However, this can be attributed to the general economic crisis, caused by the pandemic. version about, that alarming figures, especially free cash flow, can be linked to the pandemic crisis, confirm the data of the first half of 2021 compared to the same period of the previous year. During the specified period, despite the second and third waves of coronavirus, the crisis slept a bit.
In the first half of 2021, compared to the same period of the previous year, all indicators increased, moreover, the growth of free cash flow is in second place after the growth of net profit - this can give investors hope for the correct and timely implementation of the planned strategy of the Rostelecom group of companies.
None of the financial indicators of PJSC for the first half of 2021 decreased compared to the first half of 2020. In this way, results of six months of 2021, ended June 30, 2021, can be assessed unequivocally positively - even a relatively small increase in OIBDA profitability against the background of dubious results of vaccination and the fight against the second and third waves of coronavirus.
Financial performance of PJSC Rostelecom in 2020 and 2019, billion rubles
| 2019 | 2020 | Change for 2020 | |
|---|---|---|---|
| Net profit | 21,9 | 25,3 | 15,9% |
| Revenue | 475,8 | 546,9 | 15,0% |
| OIBDA | 170,7 | 194,1 | 13,7% |
| CAPEX, not incl. state programs | 105,7 | 107,1 | 1,4% |
| CAPEX | 134,4 | 136,0 | 1,2% |
| OIBDA Profitability | 35,9% | 35,5% | −1,1% |
| free cash flow | 30,3 | 22,7 | −7,6% |
Financial performance of PJSC Rostelecom in the first half of the year 2020 and 2021, billion rubles
| 1п2020 | 1п2021 | The change | |
|---|---|---|---|
| Net profit | 15,1 | 23,0 | 52,2% |
| free cash flow | −15,9 | 3,2 | 19,1% |
| OIBDA | 95,9 | 11,4 | 16,2% |
| CAPEX | 53,6 | 61,5 | 14,7% |
| CAPEX, not incl. state programs | 46,7 | 51,6 | 10,5% |
| Revenue | 248,9 | 270,5 | 8,7% |
| OIBDA Profitability | 38,5% | 41,2% | 7,0% |
Plans
The main plan of the group of companies is to become a leader in all communication segments in Russia. Management predicts an increase in market share from 25 to 28% in the B2C segment and the final transition from the concept of a telecom operator to the concept of a provider of digital integrated services. It is also planned to build and monetize the main communication line "Europe-Asia Transit" by 2025.
Management plans to increase OIBDA by 1.5 times by 2025, and net profit - 2 times. Share of revenue of digital services, according to the company's forecasts, by 2025 will increase against the backdrop of a decrease in the share of revenue from fixed-line telephony.
Expanding mobile coverage is also part of the group's strategy. By 2030, communication should appear in 24 thousand small settlements with a population of less than 500 people, at the same time, it is planned to say goodbye to remote regions with outdated copper infrastructure and replace it with optical.
The company has ambitious plans: with an increase in investment activity, reduce the ratio of capital costs to revenue. The subscriber base of Tele-2 is planned to be brought to the third place in Russia in 2022. However, from the words of the top management of the company, we can draw conclusions, that he is more interested in digital services, which will help transform Rostelecom from an ordinary telecom operator into an IT giant nationwide. These are data centers., portal of public services, "Center for Identification Technologies", security technologies. The plans of the group of companies to place a significant emphasis on the implementation of government orders are quite transparent.. At the same time, in order to reduce capital expenditures, a certain restructuring and transformation of the company is foreseen - there will be fewer regional branches.
With the development of digital services, everything is relatively clear: the state will help, as this meets the goals of the national project "Digital Economy". For this project, the state plans to increase costs three times as a share of GDP., and this is great news for investors.
As for the modernization of mobile communication and Internet coverage in the regions, the issue is more complex.. Apparently, the group of companies will have to solve this problem without state assistance: in order to prevent the negative effects of the pandemic, it was mainly about coverage in apartment buildings and increasing the capacity of data storage, including within the framework of the Yarovaya law, but nothing was said about the modernization of infrastructure in small towns.
Known, that the state will oblige operators to upgrade the mobile communication infrastructure in small towns at their own expense. As for the Internetization of regions with the help of fiber optic cables, So far, only state support for broadband access to the Arctic regions is known. Rostelecom does not participate in this program, but one of the main competitors of the group of companies, Megafon, will take part in it. There is nothing good in this for the dynamics of PJSC securities.
Risks
Among the short-term risks, the most significant at the moment is the possible loss of a significant part of the client base due to the reduction of regional branches. Let's start with this, that dismissed managers can take a certain number of "their" clients with them. apparently, in order not to cause negative moods among some customers in the regions, the group of companies does not like to talk too much about the ongoing restructuring - this information is not available on the PJSC website, she slips only in interviews with top managers. The company's plans to close only district branches as unnecessary can reduce this risk., this does not apply to smaller regional branches, and laid-off employees will be transferred there.
Another significant risk is legal. This applies to the practice of intrusive offers of additional services., in the segment where Rostelecom's revenue is growing the most. Lawsuits recurring with a certain frequency on the facts of violation of consumer rights clearly do not contribute to increasing the investment attractiveness of PJSC. There have been similar cases in 2013, and c 2016, and c 2017, and in 2018, but, apparently, the group of companies did not learn anything from this.
Little of, in 2021, the group of companies had much more serious troubles with the law: due to cartel collusion in the implementation of the federal project "Information Infrastructure". The more often such incidents will happen., the lower will be the investment attractiveness of Rostelecom. PAO also had trouble with the court, associated with low quality of service. Despite state capital in Rostelecom, the judiciary is not always eager to take his side.
Coronavirus raises another risk: risk of non-payment. The group of companies made a decision in 2020 not to disconnect small and medium-sized enterprises from communications in the event of a delay in paying bills. In general, due to the transfer of employees to remote work and, hence, increase in demand for home internet coronavirus did not adversely affect the operating results of the group. But in the future, if the pandemic drags on, non-payments can lead to a deterioration in financial results.
Top management of the group assesses as a significant risk of phishing attacks on users' personal data. but, According to him, security specialists, working in the company, cope with the prevention of such troubles. Also last year, cables were damaged during construction work., and there has been an increase in thefts.. Can be predicted, that theft of cables will increase due to the fall in the standard of living of the population. However, the risk of major accidents, which can paralyze the provision of communication to entire regions, can be considered low. Such accidents occur relatively rarely., global accident with the fall of the websites of government agencies was in March of this year, major accident, blocking access to the Internet in the Asian part of Russia, happened in 2019, short-term failure - in December 2020. The accidents concerned only broadband Internet, but never mobile communications.
Outcome
In terms of short-term and medium-term dynamics of PJSC shares - as ordinary, and privileged — we can expect continued growth on the news:
- Message from the General Director of the company Mikhail Oseevsky on August 6 about, that the dividend payment for 2021 will increase significantly.
- Growth in free cash flow.
- The emergence of new offers in Armenia with an Internet speed of 200 Mb / s.
- Acquisition of shares of IT company "Voyslink".
- Opening of a center of expertise for cybersecurity services in Samara.
Long-term dynamics will be determined by the continued improvement since the crisis of 2020 in the company's financial and operational performance, as well as the implementation of plans, incorporated into its Tele-2 coverage expansion strategy, modernization of Internet infrastructure in the regions, transformation into a full-fledged IT giant with a significant share of specialization in government orders.
Tougher competition may be alarming., in particular, the decision of the state to provide a tender for the Internetization of the Arctic to MegaFon and a general aggravation of competition in connection with the pandemic that has not yet ended. In this situation, the overly ambitious plans of the Rostelecom group of companies to become a leader in all communication segments do not look very feasible..
Also, the price of shares can be negatively affected, if the company, included in PJSC, continue to break the law, and the latest news show, that this practice continues. Other risks in the long term are not very significant..
According to Fitch Ratings, Standard & Poor's and the rating of the Analytical Credit Rating Agency (ACRE), outlook is uniquely stable.
The group of companies is involved in a significant number of telecommunications projects abroad. At the same time, the expansion is preserved., the largest ongoing project is the Europe-Persia communication line. In this sense, the blocking of Rostelecom in Ukraine can be considered a not very significant negative factor for the international development of PJSC.
Group shares have strong short-term prospects, mid-term and long-term rally against the backdrop of not very significant risks, incomparable in value with positive growth factors.
