Earnings Report /
Russia

Reports in-line 3Q21 results, upgrades OIBDA guidance – NEUTRAL

  • MTS published 3Q21 results that were 1.4-0.5% ahead of our and consensus estimates on revenue

  • In-line Russian MSR dynamics, closing the gap to Tele2 by incremental revenue

  • FL reports strong 24%+ growth (mostly inorganic), Bank’s revenue broadly in line with expectations

Anna Kurbatova
Anna Kurbatova

Senior Analyst, TMT & Agro

Olesya Vorobyeva
Olesya Vorobyeva

Analyst, TMT, Agro and Retail

Alfa
17 November 2021
Published by

MTS (MBT US/MTSS RX, E/W, TP $8.7/RUB330) published 3Q21 results that were 1.4-0.5% ahead of our and consensus estimates on revenue and broadly in line on OIBDA. Russian mobile revenue growth expectedly decelerated to 4.2% y/y, broadly in line with expectations. MTS Bank’s performance was solid and also brought no surprises, while FL surpassed our and market forecasts on revenue by 18-10% mainly driven by inorganic growth. MTS upgraded its 2021 guidance on OIBDA to 6%+ growth (vs 5%+ y/y guided earlier), narrowing its capex projection to RUB110bn, leaving revenue guidance unchanged (high-single-digit growth y/y). The updated guidance supports current street expectations (the current BBG consensus expects 6.7-6.1% y/y revenue and OIBDA expansion) and suggests a confident Q4 FCF picture. During the conference call we expect investors to focus on management’s comments on the current mobile market environment and 2022 prospects. Overall, we treat the results as neutral for MBT/MTSS.

In-line Russian MSR dynamics, closing the gap to Tele2 by incremental revenue. Russian MSR of RUB89.1bn (up 4.2% y/y) expectedly decelerated from 5.3% y/y in 2Q21, coming broadly in line with our and consensus estimates (+4.3% y/y estimate). The healthy dynamic was driven by both the increase in the number of MTS mobile subscribers (79.7mn, +1.5mn y/y and +1.1mn q/q) and rising ARPU, which advanced 2.2% y/y according to our estimates. In terms of incremental revenue, MTS added RUB3.6bn y/y in Q3 compared to RUB3.8bn by Tele2 and RUB2.3bn by Beeline (Megafon’s numbers are not available). We note that MTS continued closing the gap to Tele2 by incremental revenue: from RUB3.4bn in Q1 to RUB0.75bn in Q2 and RUB0.2bn in Q3. We attribute this partially to MTS’s historic leadership by international roaming services, which are seasonally high in July-September. At the same time, MTS noted “limited recovery in high-margin roaming revenue” in Q3.

FL reports strong 24%+ growth (mostly inorganic), Bank’s revenue broadly in line with expectations, retail sales come below estimates:

  • (++) Fixed-line dynamics substantially accelerated to a 24.1% y/y increase in Q3 (vs. 3.9% in Q2), thus, outpacing our and consensus projections by 18-10%, as we and the market underestimated the impact from the consolidation of previously acquired businesses. Revenue was mainly driven by B2C (excl. telephony), which grew 12% y/y (flat growth q/q).

  • (+/-) MTS Bank’s quarterly revenue growth slightly decelerated to 41% y/y (from 43% y/y in Q2) to RUB12.5bn, coming just 0.7% below our and 1.9% above consensus forecast. The bank reported RUB2.6bn in OIBDA (64% higher y/y, 11% lower q/q), implying 20.3% margin (+2.5pp y/y and -4.5pp q/q). The gross loan portfolio of RUB216.5bn (+54% y/y) was a bit better than our RUB212bn estimate. The retail cost of risk (CoR) metric remained in good shape at 7.4% in Q3 (+0.1pp q/q), but we note some growing CoR in the non-retail loan portion. In terms of non-performing loans (NPL), the picture looks better than a quarter ago with 6.4% NPL share (-0.9pp q/q) and 150% coverage (+12pp q/q).

  • (-) Sales of handsets increased 4.7% y/y to RUB17.7bn, being 3-2% below our and consensus forecast. MTS opened 131 new stores on a net basis in Q3. Software sales in Q3 declined 12% y/y to RUB1.9bn, 2-19% missing our and consensus estimates.

EBITDA and capex guidance update imply confident FCF (and dividend base) picture in Q4. MTS now expects at least 6% higher y/y OIBDA (vs. 5% guided earlier, 6.1% y/y growth expected by BBG consensus and 6.9% y/y growth in 9M21). 2021 capex budget estimate was narrowed to RUB110bn (vs. range of c.RUB100-110bn indicated earlier, including the projects related to Yarovaya law). Revenue guidance of high-single-digit group revenue growth in 2021 was reiterated (compared to +8.2% y/y in 9M21, current BBG consensus envisages a 6.7% y/y revenue growth).

Conference call:  MTS management will host a conference call today at 5pm (Moscow) / 2pm (London) / 9am (New York) via Zoom (Conference ID: 827 7359 4641; Passcode: 799701): https://us02web.zoom.us/j/82773594641?pwd=U0Y3TDlEcWdvTzRtS0dJUjdXOUVXUT09

Source: company data, consensus collected by the company

Figure 2. MTS comparison with Big-4 competitors

Source: company data, Alfa-Bank