Dear Mr. Berko: A stockbroker I know, though I don’t have an account with him, calls every couple of months with a recommendation. Each has been good. Last week, he recommended Mobile TeleSystems, which pays over 9 percent. He tells us his firm believes that the stock should reach the $16 level late in 2017. And while waiting for the stock to move higher, I’d get a 9 percent dividend. This is a Russian company, and I understand that Russia’s economy is going through some rough times. Please give me your thoughts on this stock. . If you approve, I’ll give this broker my business and buy 3,000 shares.
— B.C., Waterloo, Iowa
Dear B.C.: Mobile TeleSystems (MBT-$8.38), the largest wireless system in Russia and Ukraine, with $6.9 million in 2015 revenues, had a trailing 12-month dividend of 82 cents, which was recently reduced to 61 cents, and it now yields 7.2 percent. MBT owns 32 percent of Russia’s mobile communications market and a 37 percent share of the revenue in the data market. MBT expects to earn 80 cents a share this year, and its 994 million shares trade at a low 11 times earnings, with an impressive market cap of $8.7 billion. MBT peddles mobile and fixed-line voice and data telecom services, data transfer, broadband, pay TV and various value-added services, as well as phone accessories. The shares traded neatly between the $18 and $23 level for several years, but then oil prices collapsed. Then MBT’s share value continued to be punished for Russia’s numerous macro problems — e.g., its hostilities with Ukraine and Western sanctions. Despite this, MBT’s business operations have held up modestly well. Because the shares trade at 35 percent of their previous high, the people at this broker’s firm think MBT is an undervalued stock. They may be right.
In the past couple of years, MBT has attractively grown its wireless business and reduced its churn rate by 21 percent. The company now has over 50 percent of its wireless base on smartphones, which has led to a 22 percent annual increase in data revenue. And during the past several years, MBT has built out a fiber network in Moscow that allows it to meet the growing demand for converged services and faster broadband speeds. MBT continues to grow faster than the market, and its large size (by Russian standards, not U.S. standards) generates greater free cash flow than its competitors, while management uses that money to maintain Russia’s highest-quality network. Russia’s telecom service stinks. But MBT is known for its good service, infrequently lost calls and good connectivity. Resultantly, MBT’s superior network attracts the most valuable customers, who generate higher average revenues.
“The Russian 5” are the muscle determining the success of MBT. They are Andrey Anatolyevich Dubovskov, the CEO; Alexey Valerievich Kronya, the CFO; Ruslan Ibragimov, the vice president of corporate and legal matters; Andrei Ushatskiy, the VP of technology and IT; and Valery Viktorovich Shorzhin, the VP of procurement and administration. Don’t cross these guys. They run MBT with huge iron fists. They wear ill-fitting suits, seldom smile and have bad haircuts. An analyst I know commented, “They’ve got eyes like gray stones, and you don’t want to make them unhappy.” They insist that MBT’s revenues can grow by 5.4 percent a year and that a continued increase in data usage plus its 108 million-person subscriber base will generate higher revenues and profits of 89 cents, versus 80 cents, for 2017.
