VEON (MOEX: VEON) — international telecommunications holding. At the end of November 2021, the Moscow Exchange admitted the company to trading, providing a third level of listing.
About company
VEON operates in eight countries - Russia, Pakistan, Ukraine, Kazakhstan, Uzbekistan, Bangladesh, Georgia and Kyrgyzstan - with a total subscriber base of about 200 million people. Previously, Algeria was also on this list., but 1 July 2021 VEON sold its stake in local telecom operator Djezzy.
Russia. VEON's core business, which brings about half of the income. In Russia, the holding provides telecommunications services under the Beeline brand.
The crisis year 2020 was difficult for the company - financial results decreased by 5-15% due to the outflow of the client base in the first half of the year and the devaluation of the ruble. In 2021, the situation is reversed.: VEON Demonstrates Partial Performance Recovery, although it is still far from the level of 2019.
Pakistan. VEON's main growth point. The main brand - Jazz - the largest mobile operator in the country, who owns the financial business JazzCash, JazzTV entertainment platforms, Bajao, Jazz Cricket, Deikho, mobile application in the field of healthcare BIMA Health.
The most interesting is JazzCash - a digital financial services platform, providing mobile access to banking and payment systems for residents of the fifth country in the world by population. This year the business is growing by more than 50%.
Bangladesh. The business is in the early stages of developing its mobile and digital services.. Even with an audience of 35 million people, the financial results of the holding here are very modest and amount to only 8% of the total.
There are two main brands: Banglalink is the third largest telecom provider in Bangladesh and Toffee is one of the most popular free video platforms in the country.
Ukraine, Kazakhstan and Uzbekistan. Ukraine is the third largest segment with an audience of 26 million people, bringing order to the holding 13% income. The main brand is Kyivstar, number one mobile operator in Ukraine, which along the way develops digital services, for example Doctor Online, mobile payments, Kyivstar TV and a number of other businesses.
In 2020, the Ukrainian direction was the only, which has shown significant growth in its financial results. The revenue of the Ukrainian segment in national currency increased by 12,4% against the background of the expansion of the 4G network and the growth of the mobile audience. Growth accelerated in 2021 to 15%.
Kazakhstan and Uzbekistan are two small VEON businesses, which operate under the same Beeline brand and bring about 10% income. In addition to the main activity, the company is still developing digital services, such as the mobile operator Izi and Beeline TV.
Other regions. This segment includes two countries: Georgia and Kyrgyzstan. In total, both countries bring VEON about 1% revenues with a total audience of 3 million subscribers.
Geographic structure of income for 3 Quarter 2021, billion dollars
| Revenue | EBITDA | |
|---|---|---|
| Russia | 1,025 | 0,384 |
| Pakistan | 0,349 | 0,173 |
| Ukraine | 0,270 | 0,183 |
| Kazakhstan | 0,150 | 0,086 |
| Bangladesh | 0,145 | 0,062 |
| Uzbekistan | 0,051 | 0,026 |
| Rest | 0,022 | 0,010 |
Dividends
VEON's dividend policy assumes distribution 50% free cash flow provided, that the Net Debt / EBITDA ratio will be below 2.4 ×. Payment is made once a year, at the end of the fourth quarter. In 2020, the holding decided to forego dividends due to uncertainty due to the coronavirus pandemic.
Return of dividend payout for 2021 is the main short-term driver of growth in the value of VEON shares, which could happen as early as spring next year, if management decides to return part of the profit to shareholders.
Current results
International holding, like the main Russian competitor - MTS, working on the transformation of the company from telecommunications to technology. Following this goal, VEON sells its shares in non-key regions, to invest in the most promising digital services. For this reason, the financial results of the holding are not always stable..
Financial results of the company, billion dollars
| Revenue | EBITDA | Net profit | FCF | net debt | |
|---|---|---|---|---|---|
| 2016 | 8,885 | 3,232 | 2,414 | 0,588 | 7,162 |
| 2017 | 9,474 | 3,587 | −0,483 | 1,067 | 8,741 |
| 2018 | 9,086 | 3,273 | 0,362 | 1,032 | 5,469 |
| 2019 | 8,863 | 4,215 | 0,683 | 1,362 | 8,342 |
| 2020 | 7,980 | 3,453 | −0,349 | 0,357 | 6,108 |
| 9м2021 | 5,736 | 2,505 | 0,375 | 0,320 | 8,154 |
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| VEON | 3,23 | 7,74 | 2,50× |
| MTS | 4,37 | 9,41 | 1,80× |
| Rostelecom | 3,74 | 10,21 | 2,35× |
| MGTS | 7,24 | 13,10 | −0,09× |
| Tattelecom | 2,50 | 6,49 | −0,37× |
| Bashinformsvyaz | 8,22 | −142,08 | 3,96× |
Arguments for
Low multipliers. VEON's business is rated quite modestly: excluding debt, it is worth less than 1 year EBITDA. The main reason is weak results in the Russian market, which cannot yet be compensated.
Sale of Russian business. VEON tried to sell its Russian segment for several years, but no one dared to buy the whole business. In this regard, the company decided to start selling its tower infrastructure for $970 million.. This deal closed in the fourth quarter of 2021.
Return of dividend payments in 2022. Management promised investors to consider the return of dividends for the fourth quarter, as VEON will receive a large sum from the sale in 2021 of the Algerian telecom operator Djezzy and the Russian tower infrastructure.
Arguments against
Debt load. At the moment, the company's net debt is $ 8.154 billion., and Net Debt / EBITDA multiple is 2.5× with own medium-term target of 2.4×.
Strong competitors. VEON ranks third in the Russian market in terms of the number of subscribers and shows weak results compared to competitors: yielding leadership to MTS and MegaFon and losing to the closest pursuer - Tele-2 - in terms of growth.
What's the bottom line?
VEON is an inexpensive international telecommunications holding, which has a number of promising business projects in its portfolio: Pakistani Jazz and JazzCash, Bangladeshi Banglalink and Toffee, Kazakh Izi, Ukrainian "Kyivstar" and others.
The current drawdown in share prices is largely attributable to weak results and zero dividend payments for 2020. But after 3-4 months, the market should completely forget about it., if management decides to return to profit sharing, which in 2021 may turn out to be a record against the backdrop of the sale of Russian and Algerian assets.
