The stock price of Mobile TeleSystems PJSC (MBT, Financial), Russia’s largest telecommunications company, has been relatively low over the past couple of years compared to its historical average of the last 10 to 15 years.
Mobile TeleSystems provides telecommunication services in Russia, Ukraine, Turkmenistan and Armenia. It also has subsidiary operations in parts of Western Europe, including the U.K. The company operates through three primary business verticals, which include Russia Convergent, Moscow Fixed Line and Ukraine. Its core business services include voice and data transmission, internet access and pay TV. It also offers various value-added services through wireless and fixed lines, as well as sells equipment, accessories and handsets.
Excluding the global financial crisis, shares of Mobile TeleSystems experienced the biggest plunge between August and December 2014, falling from around $19 per share to approximaely $7 per share. Since then, they have failed to climb back to previous highs of around $20 to $25 per share. The recovery, however, has been consistent, albeit with some notable pullbacks over the last couple of years as demonstrated in the GuruFocus chart below.
Nonetheless, this slow upward trend could change for the better in the coming quarters if the company’s new acquisitions and projects pay off.
The company announced last week it acquired two of Russia’s leading ticketing companies as it seeks to augment its digital activities amid growing usage of mobile platforms in transactions. Mobile TeleSystems acquired a 100% stake in Ticketland.ru and a 78.2% stake in Ponominalu.ru, the leading players in the Russian event ticketing industry, according to a recent report. This move will expand its addressable market in digital services as well as help it to integrate more information sources into its array of big data applications.
The company has taken a special interest in the emerging trends of big data and the internet of things. Expanding into these new markets gives it direct access to consumer behavior and interests. It launched the Open IoT Lab in Russia last December in a bid to boost the country's internet of things ecosystem.
Mobile TeleSystems also inked a deal with Finland-based technology giant Nokia (NOK, Financial) to launch a 5G network as it seeks to keep up with developments in North America and Western Europe. Again, 5G technology will also play a huge part in helping the company to take advantage of the new markets it has ventured into following its latest acquisitions.
This could boost its revenues and net income tremendously, which have maintained steady growth over the last six years. The company’s revenue has been growing at a mid-single-digit rate, but with the injection of more revenue from its new businesses and projects, its top line could be significantly impacted in the coming quarters.
Mobile TeleSystems’ net income, however, has remained notably subdued over the past couple of years following a decline in 2014, as shown in the GuruFocus chart above. But we could also witness a significant rebound should the company capitalize on the synergies created after integrating the new businesses into its pipeline.
The company also entered the “Smart Taxi” business when it launched a TaxiApp last October, a move analysts view as a feasible project that can take on Uber's growing presence in the country. Again, given the company’s array of technological services, it could also use the Taxi App to collect key data that could boost its competitiveness in the IoT and big data markets in the coming years.
Looking at the number of projects and businesses the company is hoping to integrate into its business model in the coming quarters, there will be plenty of synergies to boost its bottom line.
The company is currently valued at about 11.6 times earnings, which appears to be relatively cheaper compared to industry averages and its own historical averages. While it has averaged a price-earnings ratio of about 13 times in the last couple of years, the average shoots to about 20 times when you go back a few more years, which is what most telecommunications and technology companies tend to trade at, bar a few special situations.
Conclusion
In summary, Mobile TeleSystems has experienced slow but steady growth in revenues over the last six years. Its bottom line, however, has been a little erratic in terms of growth compared to the top line, but this could change if it manages to take full advantage of the synergies from its latest acquisitions and new projects.
At a price-earnings ratio of just over 11 times, the stock appears to have a bit of room to run before it begins to look too expensive. But then again, things could get worse before they get better.
Disclosure: I have no positions in any stocks mentioned in this article.
