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| | Mobile TeleSystems OJSC (ADR)
Description of the Business
MBT is a provider of mobile communication servers in Russia, Uzbekistan, Turkmenistan, Armenia and Ukraine. It had a subscriber bas of 82 million.
Analysis of Competitors
Its main competitors are:
- Vimpelcom
- Megafon
Competitive Position
In their main market Russia the only two relevant competitors are Vimpelcom (Beeline brand) and Megafon. It is difficult to enter the mobile phone market, which gives
MBT a strong competitive advantage. The room for subscriber growth is limited especially in the Russian market, where a large percentage of the population has a mobile phone. However they could increase revenues by adding new services and increasing revenues per client.
MBT seems to be more conservative and has a lower debt level than Vimpelcom.
Financial Analysis
MBT has a strong profit margin of about 20% and a high return on assets (about 20%) and equity (about 40%). Their debt level is about 1.5 times their yearly profit of 2008.
Risks
The main risks of investing in MBT are:
- political instability of Russia
- High inflation in Russia
- Risks related to the Ruble currency
- The problems of the Russian economy could lead to temporarily lower cash flows, which could jeopardize their debt convenants. Part of their debt is in foreign currencies.
- The risk that new technology (like wifi) could replace the current mobile phone technology.
We assign a high risk to the MBT stock and we recommend to only have a small position in MBT and in Russian stock.
Management Team
The management team of MBT is young (several members have an age less than 40) and they have significant investments in MBT. We are cautiously positive about the management team.
Valuation Calculation
The cash flow value of MBT is $50 per share. However because of the high risks related to this stock we assign a negative risk value of $-15 a share.
The total value of MBT is $35 per share.
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