Page 110 - RPTRusFeb17

Ebitda to increase 1-3% y/y in 2017, while free cash flow (FCF) is seen increasing to $700-800mn in 2017 from $588mn FCF in 2016 overall, due to cuts in fixed-capital spending and optimising working capital. Gazprombank has a positive view of the company's prospects in light of the revised strategy, forecasting that "after several years of the transformation process, the company will return to growth and high dividend payments". Under the new plans and according to the management''s statements, the bank expects Vimpelcom Ltd to pay dividends for 2017 of $0.26-0.28 per share, implying a dividend yield of about 6%. Such a level of dividend payments will help keep the operator's leverage near 2.0х, the analysts said. Vimpelcom's net debt/Ebitda climbed to 2.0х in the fourth quarter of 2016 versus 1.4х in the same quarter of 2015. Gazprombank sees higher dividends and a possible SPO in Europe as having a positive impact on the company's shares in the medium term. In addition, the company said it will address FX (foreign currency) risks by reducing the share of FX purchases and FX debt, which could encourage fixed-income investors to focus on the company's Eurobonds, the bank suggests.
Russian internet services major Mail.ru r eported a 15% year-on-year increase in revenues in 2016 to RUB42.8bn (€700mn), b eating consensus expectations of analysts. However, the company's Ebitda last year slipped by 1% y/y to RUB17.9bn, making a margin of 41.9%, below market expectations of 45%. Net income rose by 18% y/y to RUB11.6bn. "Excluding a one-off non-cash tax charge of RUB768mn, as well as the effects of the Delivery Club and Pixonic acquisitions, the 2016 Ebitda margin would reached 46.9%, roughly in line with the companys guidance," Alfa Bank estimated on February 23. Following the publication of the results Mail.ru announced the 2017 revenue growth guidance at 16-19%, seeing the VKontakte social network as the main growth driver doubling revenues in the next 3-4 years. Mail.ru also plans to actively invest in its recent acquisitions, such as the Pixonic game developer, Delivery Club food delivery service, and the Youla marketplace, expecting a flat Ebitda margin of 42% in 2017. Alfa Bank updated the outlook on Mail.ru, raising the 2017 revenue forecast by 8% to RUB49.7bn, which implies 16% y/y growth, in line with the lower bound of the companys own guidance. However, the potential investments saw the Ebitda margin expectations cut from 47.7% to 42.4%. Mail.ru currently trades at 12.2x 2017E EV/Ebitda, implying a 13% discount to its historical average, Alfa estimates. The company "remains a strong cash generator", the bank reminds, but notes that "profitability will be pressured by investments in new business lines". Alfa Bank raised the target price by 14% to $23 per GDR, while seeing a limited 10% upside potential in the stock and, thus downgrading Mail.ru to E/W (equal weight) from O/W (over weight), which expects a total stock return of between 0% and 15%.
Google has proposed a settlement to the Federal Antitrust Service (FAS) in relation to the court proceedings associated with the pre-installation of its software on Android devices. Previously, Google had appealed the decision of the arbitration court, which instructed Google to remove the point on pre-installation of competitors’ software from contracts with vendors. In our view, Google is striving to postpone finalization of the case (which is likely to go in favor of the FAS) using every means possible. Given this, we think a final decision on the case is unlikely to come soon. We therefore view the news as NEUTRAL for Yandex (E/W; TP $22.4).
Russia's Federal Antimonopoly Service (FAS) has approved the acquisition of internet services major Mail.ru by mobile operator
110 RUSSIA Country Report February 2017 www.intellinews.com