vk.com/id446425943

Russia – market trends and company outlooks

▪Russian telcos saw an inflection point in their mobile service revenue growth in 2016, driven by price repair with low-to-mid single-digit growth since then. MegaFon (MFON; not covered) has lagged other players in the market but caught up in 3Q18 and demonstrated higher growth than MTS and VEON’s

Beeline (see Figure 24). The competitive environment remains benign and constructive; however, unlimited tariffs, despite being priced at above-average ARPU levels (RUB600-650 in Moscow), could cap growth over the long term. In 2019, we think mobile growth could be around 3%, driven mostly by VAT indexation. MFON and VEON have already notified their customers about tariff indexation (by a coefficient of 1.016949) related to the VAT increase from 18% to 20% coming into effect in Russia in 2019.

▪Regulatory risks have increased: 1) regional roaming has already been abolished; 2) higher capex driven by the introduction of an anti-terrorism law (the so-called Yarovaya law) – this is already discounted in valuations and there is no evidence so far to suggest capex needs to be increased; 3) we have no clarity on the 5G licence issuing process, or on frequency allocations especially in the 3 GHz domain where they are scarce (especially concerning to us is that MFON and RTKM have already received allocations but VEON’s and MTS’s applications were not satisfied) and we see risks of overspending on licences/frequencies (40 MHZ wide blocks cost between EUR0.5-1bn in 3 GHZ domain in UK and Italy) and infrastructure buildout1.

▪Retail: All companies have been improving their gross margin on handsets (towards 10-15% from zero in 2016), with a focus on accessories and up-selling, but a reduction of PoS may only start in earnest in 2019. Legal restructuring is complete: Euroset was split, with VEON’s part merged into VEON’s mono brand network and MFON’s part merged with Svyaznoy (MFON took a 25% stake in Svyaznoy and negotiated a preferential deal with it). Svyaznoy (multi-brand) will have 4,700 shops, plus 3,600 MFON own shops; VEON will have 5,500 stores (3,500 monobrand), MTS has 5,700 monobrand stores and Tele2 about 4,000 PoS (mostly franchise). We think that Svyaznoy could close 10-15% of the shops overlapping with Euroset in the next three months. VEON’s agreement with Svyaznoy expires in March 2019 and we doubt it will be extended.

As an upside risk, we think that each player could close 1,000-2,000 shops over the next 12-15 months at a RUB6bn pa cost, and this could add 200 bpts to operator margins, but we stick with our more conservative current forecasts not factoring such a possibility.

▪Operators are seeking new streams of income: e.g. MTS has invested in event ticketing – generally leading the B2C effort; MFON and RTKM as well as MTS are active in B2B as well. We also see those as potential sources of upside risk to our forecasts – we provide a closer looks in our latest report on Russian mobiles Russian telcos – Growth vs risks.

▪Capex budgets for 2019 are unlikely to be much different from those in 2018 unless 5G auctions come into the spotlight with potentially higher spending.

1 The four mobile operators have agreed (we do not have the details though) to join forces when constructing 5G infrastructure.

Renaissance Capital

8 January 2019

EMEA telecoms

12

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Figure 23: Big three mobile subscriber dynamics in Russia, mn

Figure 24: Big three mobile service revenue dynamics in Russia, YoY %

	210						MFON			MTS		VEON					11%
																	10%
	190																9%
																	8%
		57.7	57.4	58.1	58.3			57.0		58.3	58.8		58.2	56.3	56.4	56.2
																	7%
	170
																	6%
	150																5%
																	4%
	130																3%
																	2%
	110	77.3	77.8	79.0	80.0			79.0		78.0	78.5		78.3	78.1	78.1	78.0	1%
																	0%
	90																-1%
																	-2%
	70																-3%
																	-4%
		74.5	74.7	75.5	75.6			75.6		75.8	75.6		75.4	74.5	75.9	75.2
																	-5%
	50
																	-6%
		1Q16	2Q16	3Q16		4Q16		1Q17		2Q17		3Q17	4Q17	1Q18	2Q18	3Q18

Source: Company data

		MFON		MTS		VEON

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

Source: Company data

Figure 25: Big three EBITDA margin dynamics in Russia																		Figure 26: MTS and MFON handset sales dynamics in Russia, YoY %
					MFON*				MTS			VEON						80%							MFON			MTS
49%																		75%
																		70%
47%																		65%
																		60%
45%																		55%
																		50%
																		45%
43%																		40%
																		35%
41%																		30%
																		25%
39%																		20%
																		15%
																		10%
37%																		5%
																		0%
35%																		-5%
																		-10%
33%																		-15%
																		-20%
2Q14	3Q14	4Q14	1Q15	2Q15	3Q15	4Q15	1Q16	2Q16	3Q16	4Q16	1Q17	2Q17	3Q17	4Q17	1Q18	2Q18	3Q18	-25%
																		2Q14	3Q14	4Q14	1Q15	2Q15	3Q15	4Q15	1Q16	2Q16	3Q16	4Q16	1Q17	2Q17	3Q17	4Q17	1Q18	2Q18	3Q18

*MFON consolidated EBITDA

Source: Company data

Source: Company data

13

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

MTS

MTS plans to announce a new dividend policy in the spring and we think it could be similar to the previous one with a target payout of at least RUB75/sh over the next three years (it was RUB25-26/sh for 2016-2018). However, given its provision for the Uzbeki investigation, we think RUB15-20/sh in 2019 would be a more realistic expectation with higher payments in 2020-2021.

We have factored the consolidation of MTS Bank and the Uzbeki fine provision of RUB56bn, with a relevant payment due in 2019, into our financials. However, we exclude MTS Bank’s financials from our multiple valuation (EV/EBITDA and P/E); we have also increased our WACC from 12.5% to 13% for the DCF.

We apply a RUB70/$ exchange rate for 2019, reduce our TP to $10.1/ADR (from $11/ADR) and retain our BUY rating. For locals our new TP is set at RUB301/sh (from RUB304/sh) and we upgrade to BUY from Hold following the weakness in share price in 4Q18.

Figure 27: MTS – old estimates vs new, RUBmn (unless otherwise stated)

	Old estimates (October 2018)		New estimates*		Deviation
	2018E	2019E	2018E	2019E	2018E	2019E
Revenue	462,688	474,856	478,700	509,763	3.5%	7.4%
EBITDA	215,049	219,104	220,035	228,226	2.3%	4.2%
EBITDA margin	46.5%	46.1%	46.0%	44.8%
Net income	49,089	62,388	8,970**	64,164	-81.7%	2.8%
Capex	89,092	89,398	89,540	90,941	0.5%	1.7%

Note: Including IFRS 15 and IFRS16 impacts *Incl. MTS Bank

**Affected by RUB56bn Uzbeki fine provision

Source: Renaissance Capital estimates

Figure 28: MTS TP YE19 calculation – blended DCF and multiples, RUBmn (unless otherwise stated)

WACC, %	13.0%
Growth, %	1.0%
DCF fair value, RUB/share	380
DPS, RUB/share	20.0
DCF fair value including DPS, RUB/share	400
Target 2019 EV/EBITDA, x (excl. MTS Bank)	4.5
Target EV	1,010,482
Target MktCap	625,302
Fair value per share, RUB	342
Fair value per share including DPS, RUB	362
Target 2019 P/E, x (excl. MTS Bank)	10
Target MktCap	612,236
Fair value per share, RUB	334
Fair value per share including DPS, RUB	354
MTS Bank valuation
Target P/BV, x	0.5
Equity value	10,100
MTS stake	5,555
Fair value per share, RUB	3.0
TP: average EV/EBITDA, P/E, DCF, RUB/share (incl. MTS Bank)	354
With 15% discount, cum dividend, RUB/share	321
With 15% discount, ex. dividend, RUB/share	301
Fair value per GDR cum dividend, $	10.9
TP per GDR ex. dividend, $	10.1

Source: Renaissance Capital estimates

14

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Figure 29: MTS financials adjusted for new IFRS standards, RUBmn (unless otherwise stated)

Income statement	2017	2018E	2019E	2020E
Sales	442,911	478,700	509,763	520,190
Cost of sales	(263,124)	(258,665)	(281,536)	(288,221)
EBITDA adj.	179,787	220,035	228,226	231,970
EBITDA margin (%)	40.6%	46.0%	44.8%	44.6%
Depreciation & amortisation	(79,912)	(104,028)	(106,109)	(107,170)
Operating profit	99,875	116,006	122,118	124,800
Other income/(expense), including FX and discontinued operations	(17)	(56,837)*	(255)	(260)
Net interest	(20,516)	(29,712)	(37,305)	(35,567)
PBT	75,567	85,209	84,558	88,973
Tax	(18,977)	(19,598)	(19,448)	(20,464)
Tax rate	25.1%	23.0%	23.0%	23.0%
Minorities	(548)	(888)	(946)	(965)
PAT	56,042	8,970	64,164	67,544
Shares, mn**	1,831	1,831	1,831	1,831
ADR, mn	915	915	915	915
EPS per ADR, RUB	61.22	9.80	70.10	73.79
DPS per common share***, RUB	26.0	26.0	20.0	25.0

Balance sheet	2017	2018E	2019E	2020E
Non-current assets	379,665	555,066	551,898	538,070
Current assets	60,575	63,061	65,094	64,325
Monetary assets	81,343	118,748	72,278	43,757
Other assets	29,487	29,487	29,487	29,487
Total assets	551,070	766,361	718,757	675,639
Current liabilities	78,159	86,992	90,064	89,281
Indebtedness (incl. lease liability)	304,644	488,872	469,672	404,597
Minorities and other	48,141	104,781	49,975	50,941
Equity	120,126	81,497	109,046	130,821
Total liabilities & shareholders' equity	551,070	762,143	718,757	675,639
Net debt	223,301	370,124	397,394	360,840

Cash flow	2017	2018E	2019E	2020E
NI ex other items	54,741	67,668	64,164	67,544
Non-cash Items	79,159	107,863	107,055	108,135
Change in working capital	10,740	6,348	(54,714)	(14)
Operating cash flow	144,640	181,879	116,505	175,664
Capex	(76,152)	(89,540)	(90,941)	(93,342)
Investing cash flows	(73,178)	(113,610)	(102,941)	(93,342)
Free cash flow incl. lease payments	71,462	56,269	1,563	70,323
Financing cash flow	(50,445)	(26,645)	(55,815)	(110,844)

Note: *Including RUB56bn Uzbekistan fine (according to the company’s provision) **Shares adjusted for treasury shares

***Dividend for the respective calendar year

Source: Company data, Renaissance Capital estimates

15

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

VEON

We have adjusted our 2018 and 2019 EBITDA down due to a weaker currency outlook in Russia and Pakistan as well as higher HQ costs than we assumed before. During its 3Q18 results conference call, management confirmed its FY18 target to reduce corporate costs by around 20% YoY from $431mn in FY17, but its target to halve them is likely to be reached only in 2020, in our view.

Telenor’s convertible bond matures in September 2019 and the current conversion price adjusted for dividends is $4.0649 (vs $4.9 initial). Since 12 October 2018, Telenor has a right for a call (Telenor can redeem the bond in cash, shares or a combination) with the call trigger price of $5.284/ADS (at current conditions) which is more than twice the current market price.

Figure 30: VEON ownership structure

Shareholder	Common shares	% of common and voting shares
Free float	513,454,732	29.2%
Telenor	256,703,840	14.6%
LetterOne	840,625,001	47.9%
The Stichting	145,947,562	8.3%
Total	1,756,731,135	100%
			Source: Company data
Figure 31: Telenor convertible bond information
Issue size, $			1,000,000,000
Maturity date			20-Sep-2019
Initial conv price, $			4.9
Initial underlying exchange shares (Exchange property)			204,081,633
Current conv price, $ (adj. for dividends based on formula in the terms & conditions of the bond)			4.0649
Underlying exchange shares (Exchange property)			246,008,512
Issuer call (Telenor can redeem the bond in cash*)
Date			after 12 Oct 2018
Share price trigger, $			5.284
Value of the underlying exchange shares, $			1,299,908,977
Premium to the bond principal value			130%
Telenor current ownership, shares			256,703,840
VEON market price, $			2.36

Note: *Telenor has the flexibility to deliver cash, shares or a combination

Source: Bloomberg, Company data

The conversion price changes depending on the amount of dividends VEON pays before maturity.

Figure 32: Possible scenario of conversion price with a $0.31/ADS dividend distributed until maturity

		Underlying VEON shares	Amount of	Dividend	Shares to be added to	VEON market price
		(Exchange Property)	dividends, $	per ADS	the Exchange Property	assumption*, $
	Final 2018	Current 246,008,512	44,281,532	0.18	14,760,511	3.0
	dividends
	Interim 2019	263,721,125	34,283,746	0.13	11,299,991	3.0
	dividends
	After	272,069,013 shares and
	dividends	$3.68 conversion price

*Avg. price during the dividend payment period

Source: Company data, Renaissance Capital estimates

With $3.4bn cash in hand (after $2.8bn proceeds from the Italian deal; $472mn consolidated by GTH) at end-3Q18, VEON currently intends to redeem its notes expiring in 2021-2024. We believe it is also likely that the company will issue longer maturity bonds at a lower effective interest in hard currency ($ or EUR) or issue LCU bonds (e.g. in RUB) at a higher interest but matching the interests of the operating entity.

16

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

We retain our BUY rating on the stock but lower our TP to $3.3/DR from $3.8/DR previously on the back of higher headquarter costs, lower valuation of GTHE and weaker exchange rate in Russia and Ukraine; we think VEON can pay dividends in 2019 exceeding those of MTS in yield terms. However, the operating environment in a number of the countries it operates in remains challenging.

Figure 33: VEON – old estimates vs new, $mn (unless otherwise stated)

		Old (October 2018)				New				Deveiation
		2018E	2019E		2018E			2019E		2018E	2019E
Revenue		8,942	8,874		9,051			8,626		1.2%	-2.8%
EBITDA		3,429	3,449		3,344	3,259				-2.5%	-5.5%
EBITDA margin		38.4%	39.0%		36.9%			37.8%
Net income*		1,063	213		1,090	160				2.5%	-24.8%
Net debt		6,035	5,946		6,171			6,141		2.3%	3.3%
Note: *Including gain on sale of 50% stake in Wind 3 in 2018
										Source: Renaissance Capital estimates
Figure 34: VEON valuation, $mn (unless otherwise stated)
Segment			EBITDA 2019E				Target EV/EBITDA, x				EV
Russia				1,595			4.5				7,179
Ukraine				384			4.0				1,536
Algeria				348			4.0				1,566
Pakistan				654		4.0					2,941
Bangladesh				187			4.0				843
Kazakhstan				154			4.0				617
Uzbekistan				138		3.5					484
Kyrgyzstan				57			3.0				170
Armenia				34		3.5					117
Tajikistan				37			3.0				111
Georgia				11		3.5					40
PV of HQ costs and eliminations				(305)			2.5				(762)
Total ex GTH											9,491
Equity value calculation
GTH target equity value											793
GTH market equity value											555
VEON total net debt											6,141
GTH net debt											1,938
Less minorities											270
Equity with GTH at target value											5,811
$ per ADS											3.3
Equity with GTH at market value											5,573
$ per ADS											3.2
TP, $ per ADS, ex-div											3.3

Source: Renaissance Capital estimates

17

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Figure 35: VEON key financials, $mn (unless otherwise stated)

Income statement	2017	2018E	2019E	2020E
Sales	9,474	9,051	8,626	8,858
Cost of sales	(5,799)	(5,707)	(5,367)	(5,466)
EBITDA underlying	3,675	3,344	3,259	3,391
EBITDA margin	38.8%	36.9%	37.8%	38.3%
Depreciation & amortisation	(1,991)	(1,989)	(1,987)	(1,985)
PBIT	1,506	1,255	1,271	1,406
Other income/expenses	(168)	(50)	(50)	(50)
Net interest	(840)	(833)	(741)	(681)
Associates	(522)	1,200*	0	0
PBT	(24)	1,571	481	675
Tax	(472)	(483)	(313)	(405)
Tax rate	na	31%	65%	60%
Minorities	13	1	(8)	(19)
PAT	(483)	1,090	160	251
ADS, mn	1,757	1,757	1,757	1,757
EPS per ADS, $	(0.27)	0.62	0.09	0.14
DPS per ADS, $	0.28	0.30	0.33	0.35

Balance sheet	2017	2018E	2019E	2020E
Non-current assets	15,646	13,853	13,517	13,151
Current assets	1,441	1,377	1,312	1,347
Monetary assets	1,377	3,447	2,977	2,528
Total assets	19,521	19,733	18,863	18,083
Current liabilities	3,456	3,571	3,560	3,590
Other liabilities	1,461	1,462	1,454	1,435
Indebtedness	11,102	10,602	10,102	9,602
Minorities	(425)	(426)	(418)	(399)
Equity	3,927	4,524	4,165	3,855
Total liabilities & shareholders' equity	19,521	19,733	18,863	18,083
Net debt	8,741	6,171	6,141	6,090

Cash flow	2017	2018E	2019E	2020E
Operating cash flow	2,475	2,057	2,209	2,249
Capex	1,731	1,947	1,651	1,619
Investing cash flows	(3,016)	1,004	(1,651)	(1,619)
Free cash flow	(541)	3,061	558	630
Financing cash flow	(733)	(992)	(1,027)	(1,080)

Note: *Gain on sale of 50% stake in Wind 3

Source: Company data, Renaissance Capital estimates

18

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Rostelecom

According to TMT Consulting, the fixed broadband market in Russia will grow at a c. 1% 2018-2022E CAGR mainly driven by an ARPU uptick in the B2C segment due to a shift towards high-speed tariffs, while convergence continues diluting prices. Meanwhile, the pay TV market will demonstrate a higher pace of growth of 3.4% 2018-2022E CAGR on the back of a higher share of the IPTV segment given its expansion to rural areas, according to TMT Consulting. Consolidation in the market is likely to continue with larger players taking over small regional carriers, which are likely to suffer in the ‘Yarovaya law’ (anti-terror law) environment.

Figure 36: Fixed broadband market structure in Russia

Figure 37: Pay TV market structure by subscribers in 3Q18

			Other	Tricolor TV
			33%
	Other			28%
	35%		Rostelecom
			36%
			MTS	Rostelecom
	VEON		8%	23%
			ER Telecom
	7%	MTS
			12%	ER Telecom
		10%		8%
			Source: TMT Consulting	Source: TMT Consulting

RTKM demonstrated solid revenue growth in 2018 (+5.3% in 9M18), driven by broadband (+11.5%), Pay-TV (+25%) and VAS and Cloud revenues (+48% YoY in 9M18) mainly due to the development of state-related projects (e.g. ‘Smart City’), data-centres and the promotion of cloud services. Concerning the customer split, the B2B/B2G unit is the main growth driver with its revenue up 11% in 9M18, while B2C is up just 1.3% – a trend we expect to continue in 2019.

We slightly increase our EBITDA forecast, but decrease FCF to RUB11bn, 38% lower than in 2017. FCF has been under pressure in 2018 due to negative WC dynamics related to one-off projects and lower proceeds from the sale of PPE, specifically real estate.

RTKM started to pay interim dividends in 2018 – RUB2.5/sh for 9M18– and we expect total dividends to amount to RUB5/sh – the minimum level allowed by its dividend policy due to the softer FCF generation in 2018.

We maintain out TP for common shares at RUB86/sh (BUY rating also maintained) and preferred shares at RUB56/sh (HOLD maintained).

Figure 38: Rostelecom – old estimates vs new, RUBmn (unless otherwise stated)

	Old (October 2018)		New		Deviation
	2018E	2019E	2018E	2019E	2018E	2019E
Revenue	317,119	324,648	317,119	324,648	0.0%	0.0%
EBITDA	99,510	102,343	100,462	103,317	1.0%	1.0%
EBITDA margin	31.4%	31.5%	31.7%	31.8%
Net income	19,008	20,892	19,001	21,219	0.0%	1.6%
Capex (excl. state programs)	63,567	62,386	63,567	62,386	0.0%	0.0%

Note: Including IFRS 15 and IFRS16 impacts

Source: Renaissance Capital estimates

19

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Figure 39: Rostelecom financials adjusted for new IFRS standards, RUBmn (unless otherwise stated)

Income statement	2017	2018E	2019E	2020E
Sales	305,329	317,119	324,648	333,112
Cost of sales	(208,472)	(216,657)	(221,331)	(227,294)
EBITDA	96,857	100,462	103,317	105,818
EBITDA margin (%)	31.7%	31.7%	31.8%	31.8%
Depreciation & amortisation	(56,628)	(58,815)	(60,783)	(61,325)
PBIT	37,885	41,647	42,533	44,493
Other income	(548)	(1,200)	(200)	(200)
Net interest	(15,739)	(16,038)	(16,485)	(17,157)
Associates	(2,692)	940	2,122	2,597
PBT	18,906	25,349	27,970	29,733
Tax	(4,856)	(5,858)	(6,204)	(6,513)
Tax rate)	26%	23%	22%	22%
Minorities	(353)	(490)	(547)	(583)
PAT	13,697	19,001	21,219	22,637
Common shares, mn	2,575	2,575	2,575	2,575
Preferred shares, mn	210	210	210	210
EPS per common share, RUB	5.3	7.4	8.2	8.8
DPS per common share, RUB	5.0	5.0	5.2	5.5
DPS per preferred share, RUB	5.0	5.0	5.2	5.5

Balance sheet	2017	2018E	2019E	2020E
Non-current assets	348,430	379,896	378,550	376,019
Current assets	66,178	71,352	72,396	74,284
Monetary assets	3,815	3,500	3,500	3,500
Investments	141,806	142,746	144,868	147,465
Total assets	560,229	597,495	599,314	601,268
Current liabilities	49,030	51,690	53,242	54,963
Indebtedness (incl. lease obligation)	191,372	210,159	206,532	201,884
Minorities	3,242	3,732	4,279	4,862
Equity	246,122	253,552	260,849	269,095
Total liabilities & shareholders' equity	560,229	597,495	599,314	601,268
Net debt	187,557	206,659	203,032	198,384

Cash flow	2017	2018E	2019E	2020E
Operating cash flow	71,769	75,852	80,935	81,782
Capex*	(60,752)	(67,567)	(66,386)	(66,244)
Investing cash flows	(53,458)	(64,567)	(63,386)	(62,744)
Free cash flow	18,311	11,285	17,550	19,039
Financing cash flow	(18,601)	(17,771)	(19,122)	(19,591)

Note: *Including state programme

Source: Company data, Renaissance Capital estimates

Sistema

Sistema’s deleveraging process has progressed slowly in 2018, with RUB228bn liabilities as of end-3Q18 (net liabilities of around RUB214bn). We think that by the end of 2018 net liabilities could decrease by RUB8bn to around RUB206bn supported by MTS interim dividends, MTS buybacks and dividends from subsidiaries.

Over the next three months, Sistema is likely to close the Detsky Mir (DM) deal, as a result of which its leverage profile should see a notable improvement. In 2019, c. RUB58bn debt is due to mature including c. RUB25bn of eurobonds. Management currently targets RUB150bn of liabilities during the course of 2019 (or by YE19).

We have made slight adjustments to our forecasts, factoring in higher liabilities (largely due to higher investments in 2019) and an exchange rate of RUB/$70, and reduce our TP to RUB13 per common share (from RUB15.8/sh) and $4.4 per GDR (from RUB6.2/GDR), maintaining our BUY ratings.

Fundamentally the shares look undervalued to us, but we doubt the stock will attract much attention given historic risk and the absence of wider investor interest in Russia.

20

vk.com/id446425943

Renaissance Capital

8 January 2019

EMEA telecoms

Figure 40: Discount of SSA (GDR) to MBT (GDR) and value of other assets (net of costs and liabilities)

-10%

-15%

-20%

-25%

-30%

-35%

-40%

-45%

-50%

-55%

-60%

-65%

-70%

Jun-17

Jul-17

Oct-17

Nov-17

Dec-17

Jan-18

Feb-18 Mar-18

Apr-18

Jun-18

Jul-18

Oct-18

Nov-18

Dec-18

Jan-19

May-17

Aug-17

Sep-17

May-18

Aug-18

Sep-18

Source: Bloomberg, Renaissance Capital estimates

Figure 41: Sistema – valuations of individual companies

Company

Sector

Effective

SSA's equity

SSA's equity

Valuation

Multiple

ownership

value RUBmn

value $mn*

approach

MTS

Telecoms

50.00%

275,556

3,937

Target price

na

Segezha Group

Detsky Mir

Bashkirian Power Grid

Company

RTI

MTS-bank

Medsi

Real-estate portfolio** Agricultural assets (88.1% of Agroholding Steppe and 50% of RZ Agro)

Other (Binopharm,

Ozon, Concept Group,

Kronshtadt Group,

Technopark Sarov,

Sistema Capital

Partners, Intourist and

Regional Hotel Chain)

	Pulp&paper	100%	54,138	773	Multiples (Blended	na
					EV/EBITDA, P/E, x)
	Retail	52.1%	44,908	642	Target price	na
	Utilities	91%	14,379	205	Multiples (EV/km, RUB)	192,902
	Defence/Microelectronic	87.0%	3,402	49	Multiples (EV/EBITDA)	Various***
	s
	Banking	43.2%	4,367	62	Multiples (P/BV, x)	0.50
	Healthcare	100%	27,203	389	Multiples (EV/EBITDA,	14.0
					x)
	Real estate	misc	43,638	623	misc	na
	Agriculture	misc	20,400	291	Multiples (EV/EBITDA,	Various****
					x)
	Misc		24,024	343	Deal value, multiples	na

Total gross NAV

512,014

7,314

Note: *Translation at $/RUB 70; **Assets: Lider-Invest (development business fair value at RUB24bn), Business – Nedvizhimost, Mosdachtrest (rental assets fair value at c. RUB20bn); ***Defence and security solutions at 7.4x and microelectronics at 5.6x. ****Steppe at 6.5x and RZ Agro at 6x.

Source: Company data, Renaissance Capital estimates

Figure 42: Sistema – calculation of TP

	Valuation with TP of MTSS (RUB301/sh.)	Valuation with TP of	Valuation with MP of	Valuation with MP
	and DM (RUB117/sh), RUBmn	MTSS and DM, $mn* MTSS** snd DM**, RUBmn		of MTSS**, $mn*
Gross market NAV	512,014	7,314	440,422	6,292
Liabilities to Rosimushchestvo	19,100	273	19,100	273
Holding' Net debt***	205,700	2,939	205,700	2,939
Holding's costs PV	46,631	666	46,631	666
Net NAV	240,583	3,437	168,991	2,414
Holding discount with additional risks, %	40%	40%	40%	40%
Sistema's NAV	144,350	2,062	101,394	1,448
TP
Value per GDR, $		4.4		3.1
Value per local share, RUB	15.3		10.8
Value per local share at a historical average 15%	13.0		9.2
discount to GDR, RUB

Note: *Translation at $/RUB 70; **MTSS price RUB232/share; DM (DSKY) price RUB90/share.; ***3Q18 net debt adj. for future inflows/outflows until YE18

Source: Company data, Renaissance Capital estimates

21