* MegaFon overtakes MTS, Vimpelcom by market cap
* Beats profit forecasts, ups guidance, announces dividend
* Lower costs propel margins ahead of competitors
By Maria Kiselyova
MOSCOW, May 15 MegaFon has
overtaken its main competitor in Russia's cut-throat mobile
phone market, posting bumper earnings on Wednesday to help crown
it leader by market value and put its other rival in the shade.
MegaFon, owned by Russia's richest man Alisher Usmanov, lags
New-York listed MTS in terms of revenues and subscriber
numbers, but as a result of an aggressive cost-cutting campaign
launched last year, it was able to hike its margin forecast and
announce a dividend of $1.3 billion, helping its shares rise.
Its results put Vimpelcom, Russia's third-biggest
mobile phone provider with assets in emerging markets and Italy,
firmly in its place. It failed to impress analysts by reporting
a below-forecast 28 percent rise in net profit on Wednesday.
"MegaFon has probably shown the strongest results that any
other operator is unlikely to match," said Anna Lepetukhina,
analyst at Sberbank Investment Research.
Since its November initial public offering, shares in
MegaFon have risen by 68 percent, valuing the company at $20.6
billion, above $19.9 billion for MTS and Vimpelcom.
"It used to have quite high expenses in the past because it
was an aggressive player, focused on growing revenues rather
than on efficiency," Lepetukhina said. "Now that it's focused on
efficiency, it has room to cut (costs) and improve efficiency."
Russia's mobile operators have been focusing on cutting
costs as the market has matured, meaning there is less need to
spend on advertising revenues to lure new subscribers, although
they have had to invest in rolling out next-generation networks.
MegaFon, which analysts say is best placed of all Russia's
mobile phone firms for the 4G roll out, reported a 36.5 percent
rise in first-quarter net income to 12.6 billion roubles, above
the 10.6 billion rouble forecast by analysts in a Reuters poll.
It also boosted operating income before depreciation and
amortisation (OIBDA) as a percentage of revenues to 47.8 percent
- its best result in two years - from 40.6 percent a year ago.
MegaFon, which raised $1.7 billion in its November flotation
in London and Moscow, also raised its full-year guidance for
that margin to 42.5-44.0 percent from 41.6-43.0 percent, while
keeping its high single-digit revenue growth forecast.
Vimpelcom, part of tycoon Mikhail Fridman's Alfa Group,
increased its margin to 42 percent in the first quarter from
41.1 percent the year earlier, versus a 41.8 percent forecast.
"We have very healthy competition in Russia, you see it in
churn numbers, in prices coming down, in willingness to invest
in data networks," Jo Lunder, the chief executive officer of
Vimpelcom, told Reuters by telephone.
"There has been a gradual movement to focusing on cashflows
and profitability, and I think it is good for the market and for
customers as it means that operators will have cashflow to
reinvest," said Lunder.
Unlike many European peers, Russian mobile firms are still
growing revenues thanks mainly to the increasing use of
smartphones which leads to more internet traffic on mobile
Elsewhere in Europe, telecoms firms are struggling with an
overcrowded market, regulations and recession.
Russian companies are building out data-centred 4G networks
after the distribution of LTE (Long Term Evolution) licences
last summer. But they are also returning excess cash to
shareholders, offering comparable dividend yields.
MegaFon on Wednesday announced a long-expected dividend, set
at 64.51 roubles per share, or a total of 40 billion roubles,
for 2012 and the first quarter of 2013.
Breaking down the figure gives a 2012 payout of 54.17
roubles, implying a 5.2 percent yield, while including the 10.34
roubles payable on first-quarter results, the yield would rise
to 6.2 percent.
Vimpelcom's dividend yield stands at 7.1 percent based on
the 2012 payout, but taking into account a special, one-off
dividend of nearly the same size, the yield comes to 14 percent.
MTS' stock offers a dividend yield of 5.6 percent based on
the payout of 30.2 billion roubles for 2012. The company also
intends to pay an additional dividend in the autumn worth around
11 billion roubles.