Daily analyst comments
MTS may be eyeing Alt Telecom network
27.07.09 11:02
Efforts by MTS to develop its own retail network look timely and consistent, even though the fact of owning an in-house retail network is ambigous – we view this business as delicate, capital intensive and low-margin. We note however that the company has faithfully stuck to its strategy, which has a positive impact on its image.
RBC Daily reported on July 24 that MTS had allegedly held talks on the acquisition of the Alt-Telecom network of cellullar phone shops, which encompasses 350 retail outlets.
The deal is potentially quite possible, despite the lack of official commentaries from its participants. MTS has been persistent in building up its own retail network, which now has all the formal hallmarks of a serious market player, following a series of steps undertaken by the company (the takeovers of Telefon.ru and Eldorado cellular phone shops; the transfer of Svyaznoy’s ex-team to MTS (see daily of March 5, 2009). Compared to the Euroset network of 3,700 retail outlets and 1,800 Svyaznoi shops, the MTS retail network looks quite imposing, with roughly 2,800 retail outlets. Admittedly, the number of stores in a network is not the decisive factor for the success of a retail business. For MTS, the network is really a venture project, but the price of the project (put at several tens of millions of dollars) is relatively insignificant for the company in absolute terms and it can easily affort to take the risk.
We assign a BUY rating to MTS shares, with a target price of USD 10.80 per share as of year-end, 2009.