Daily analyst comments

On June 28, Dalsvyaz held an AGM. The top item on the agenda was the company’s reorganization by means of a merger into Rostelecom. According to Dalsvyaz, the meeting was attended by the holders of 73.7% of its voting shares, with 85.1% of those present voting in favor of company reorganization. Another 12% voted against the reform. Dalsvyaz has become the last of the seven inter-regional telecoms companies (MRK) to give approval to the Svyazinvest reorganization.

The main intrigue in Dalsvyaz is that the AGM, originally scheduled for the end of May, was postponed for a month, as Svyazinvest management feared that Dalsvayz’s merger into Rostelecom could be blocked by a group of major minority shareholders, displeased with the swap ratios offered. Fortunately, the fears have appeared ungrounded, as Dalsvyaz shareholders have backed the reform, following in the footsteps of shareholders in other MRKs.

In our view, the AGM is a significant event for Svyazinvest, showing that reorganization of Svyazinvest assets has entered a new phase after going through a stage of getting corporate approvals. Igor Pshenichnikov, director of the Svyazinvest external communication department, has stated that the reorganization is ‘a settled affair and it is already impossible to turn the process back’. In our view, the fact that the reorganization proceeds on schedule should boost investor confidence and raise the investment appeal of Rostelecom shares. We estimate the news released as positive.

Based on the swap ratios approved, our long-term fair prices for Dalsvyaz are USD 5.64 per common share and USD 4.44 per pref at the time of its merger with Rostelecom, with an upside potential of 86% and 77%, respectively. We assign a BUY rating to Dalsvayz common and preferred shares.