MTS (MOEX: MTSS) — Russian telecommunications company, which builds its own ecosystem. In addition to the main business - the provision of mobile and fixed communication services, — the company develops new directions: fintech, media services, retail sales, cloud and digital solutions, but the share of the latter in the overall results is extremely small - less than 1% proceeds.
Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Financial results
In mid-November, the company presented financial results for 9 months of 2021, after which the quotes fell by 3% over the next three days.
Main factors. MTS in the third quarter showed good data on revenue and OIBDA and weak on net income and debt.
Revenue in the third quarter of 2021 increased by 8%, up to 138.2 billion rubles, due to the growth of the main business segment. In particular, due to an increase in the number of subscribers and a partial recovery of roaming revenues against the backdrop of the resumption of international travel.
OIBDA added 4,2% — up to 61.3 billion rubles. Growth driven by higher revenue and strong results in Russia, but weak data in Armenia and the retail segment partially slowed down growth.
Net profit over the past three months has fallen by 12,5% — from 18.8 billion to 16.3 billion rubles. The decrease is explained by an increase in depreciation costs, as well as an increase in the cost of financing investments due to the growth in interest rates in Russia.
Against the backdrop of buybacks and large dividend payments, MTS's net debt over the past 12 months grew by 31% — up to 396.7 billion rubles, and the Net Debt/Adjusted OIBDA ratio increased from 1,4 to 1,8.
Main financial results of MTS in the third quarter, billion rubles
| 3к2021 | 3к2020 | The change | |
|---|---|---|---|
| Revenue | 138,2 | 127,5 | 8,4% |
| OIBDA | 61,3 | 58,9 | 4,2% |
| Net profit | 16,5 | 18,8 | −12,5% |
| Capital expenditures | 33,1 | 23,4 | 41,5% |
| net debt | 396,7 | 302,4 | 31,2% |
| net debt / OIBDA | 1,8 | 1,4 | 0,4 P. P. |
| free cash flow | 6,1 | 29,4 | −79% |
Ecosystem
The main growth driver of MTS is the development of its own ecosystem with many digital businesses, which in the future the company could bring to an IPO or sell to a private investor. Four assets are best suited for these goals.: tower infrastructure and three areas - fintech, media and retail.
MTS plans to close a deal to sell its tower business in the first half of 2022, which investors can estimate at 90-100 billion rubles. According to the media, two companies show interest in the asset: Kismet Capital Group and Service-Telecom. After the sale, MTS shareholders will not receive special dividends, since the company will send the proceeds to reduce the debt burden.
Growth dynamics of ecosystem clients of MTS, million people
| 3к2020 | 6,2 |
| 4к2020 | 6,3 |
| 1к2021 | 6,5 |
| 2к2021 | 7,4 |
| 3к2021 | 7,8 |
6,2
Average number of products, used by one client of the MTS ecosystem
| 4к2020 | 1,31 |
| 1к2021 | 1,34 |
| 2к2021 | 1,37 |
| 3к2021 | 1,39 |
1,31
Retail. The main offline project of the ecosystem and the second largest MTS business, which the company is trying to transform by entering the compact electronics market and actively selling its own fintech- and digital services. At the end of the third quarter of 2021, the number of MTS own stores amounted to 5469 stores.
Dynamics of financial results of the retail segment, billion rubles
| Revenue | Adjusted OIBDA | |
|---|---|---|
| 3к2020 | 21 | 1,7 |
| 4к2020 | 24,5 | 1,2 |
| 1к2021 | 19,6 | 0,5 |
| 2к2021 | 18,9 | 0,3 |
| 3к2021 | 22,2 | 1,2 |
Fintech. The most interesting and fastest growing segment of MTS, which can hold its IPO as early as next year with a valuation of more than $1 billion. This year the direction shows phenomenal results: MTS Bank ranked first in terms of POS lending portfolio growth and ranked seventh in terms of credit card portfolio among all Russian banks.
Dynamics of financial results of the fintech segment, billion rubles
| Revenue | Loan portfolio | Return on equity | |
|---|---|---|---|
| 3к2020 | 9 | 140,3 | 1,1% |
| 4к2020 | 9,5 | 150,8 | 3,5% |
| 1к2021 | 10,1 | 164,7 | 16,3% |
| 2к2021 | 11,6 | 193,5 | 17,6% |
| 3к2021 | 12,6 | 216,5 | 15,9% |
Media. The smallest MTS business from the presented trio. It includes online cinema Kion, cable, satellite and Internet TV and other services.
Dynamics of financial results of the media segment, billion rubles
| Revenue | OIBDA | Number of Kion Clients, million people | Pay TV customers, million people | |
|---|---|---|---|---|
| 3к2020 | 2,7 | 1 | 1,8 | 5,6 |
| 4к2020 | 2,9 | 0,9 | 2,5 | 6,6 |
| 1к2021 | 3 | 1,4 | 2,9 | 7,1 |
| 2к2021 | 3,4 | 1,2 | 3,2 | 7,4 |
| 3к2021 | 3,5 | 1,2 | 3,5 | 7,8 |
Dividends
MTS has a dividend policy from 2019 to 2021, under which the company pays shareholders annually at least 28 P per share based on two semi-annual payments - for the first and second half of the year. For the first half of the year, investors were distributed 10,55 R, means, the final payment will be at least 17,45 R.
Regarding the new dividend policy, which will be in effect from 2022, then the company will present it to the board of directors in the coming months. At the moment, two innovations are known: MTS wants to increase the size of dividends and the frequency of payments up to three or four times a year.
Forecast for the results of 2021
MTS management updated its forecast for the final financial results for 2021:
- The company approves, that revenue will increase by 8-9.9%, if we take into account the fact, what the 9 months revenue added 8,2%.
- Management raised its original OIBDA forecast to growth of at least 6%. Main drivers - partial restoration of international roaming, increase in online sales of smartphones, organic growth of ecosystem businesses and increasing their margins.
- Capital expenditures are planned at the level of 110 billion rubles against the backdrop of investments, necessary to comply with the Yarovaya law.
Problems in the industry
The entire Russian telecommunications sector has low multiples, and MTS is no different from competitors. This anomaly is attributed to low growth rates of firms., which from year to year show a one-digit increase in their financial results.
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| MTS | 4,49 | 9,86 | 1,80 |
| Rostelecom | 3,84 | 10,90 | 2,35 |
| MGTS | 7,72 | 13,95 | −0,09 |
| Tattelecom | 2,50 | 6,49 | −0,37 |
| «Bashinformsvyaz» | 8,22 | −142,08 | 3,96 |
What's the bottom line?
MTS financial results for the third quarter of 2021 cannot be called breakthrough: the company showed growth in revenue and OIBDA, and also recorded net profit at the level of previous quarters of 2021. This was driven by solid core business performance and double-digit growth in digital businesses..
Given the current results, in 2021, the Russian telecommunications leader is unlikely to violate its dividend policy, because already for 9 months, the company's earnings per share amounted to 29,15 Р with an annual minimum dividend payment 28 R.
