Daily analyst comments
Uralsvyazinform assures investors it is solvent and cuts capex target for 2009
10.10.08 10:40
Large-scale cuts in capital expenditures should allow the company to keep its debt from growing next year, which should have a beneficial effect on its stock valuations. We also note that the operator is not among the companies facing a grave liquidity crisis or a crisis of confidence in relations with lending institutions.
On October 9 URSI held a teleconference for analysts and investors to inform them about its position on the market amid the ongoing liquidity crisis.
The participants in the meeting learnt two main pieces of news: To begin with, the management expressed its confidence that the company was fully solvent, even though RUB 4.1 billion (USD 155 million) worth of its debts matured in 4Q 2008. Valery Chernyshev, the company’s deputy general director for economy and finances, informed those present at the meeting about the company’s agreements with several lending institutions.
To add to this, URSI is planning to about halve its capital expenditures in 2009 to RUB 5.2 billion (USD 197 million) in the aftermath of the crisis on financial markets. However, the cut in spending may thwart the company’s attempts to bring its network’s digitization to 100%.
The announcements came as a pleasant surprise for investors after the press release of October 7, which said that Standard & Poor’s had downgraded its outlook for URSI from ‘stable’ to ‘negative’, simultaneously affirming its long-term rating of the company at ‘BB-’. It is quite likely that URSI will remain a solvent company as, despite its hefty debt (the debt/EBITDA ratio now exceeds 2.8), the company is still rated as a reliable and welcome borrower by lending institutions. As an example, we refer to the company’s plans to place USD 150 million in credit notes at an annual interest rate of under 9%.
Our fair price for the company remains unchanged at USD 0.064 per common share and USD 0.036 per pref., with a BUY recommendation on both types of shares. We will take into account the newly-voiced plans when we next update our valuation model for the company, which is likely to raise the estimated price of its shares. However, as it is, the company’s shares look like a very attractive vehicle for investors, given the current adverse market conditions.