MegaFon to Pay $1.3 Billion in Dividends as Profit Rises

OAO MegaFon (MFON), Russia’s second-largest mobile operator by revenue, overtook bigger rival OAO Mobile TeleSystems (MBT) by market value after pledging to pay $1.3 billion in dividends and beating analysts’ earnings estimates.

MegaFon, controlled by Russian billionaire Alisher Usmanov and part-owned by Sweden’s TeliaSonera AB (TLSN), rose 1 percent at 2:06 p.m. in London, extending gains since its November initial public offering to 69 percent. That valued the company at $20.9 billion, while MTS is worth $20.7 billion in New York.

A focus on its network’s data speeds has allowed MegaFon to outpace MTS in attracting Russians increasingly surfing the Web and watching video on their wireless devices. Moscow-based MegaFon boosted data revenue 23 percent in the first quarter, expanding its profit margins.

“MegaFon has reported excellent first-quarter results, which substantially beat expectations on profitability,” Konstantin Chernyshev, an analyst at UralSib Capital, said today in a note.

Investors will get 64.51 rubles ($2.05) per ordinary share as a payout for 2012 and the first quarter of this year, MegaFon said today. Net income rose to 12.6 billion rubles in the quarter ending March 31 from 9.3 billion a year earlier. That exceeded the average analyst estimate by 19 percent, Chernyshev said.

Forecast Raised

Operating income before depreciation and amortization rose 27 percent to 32.4 billion rubles as the company cut subscriber-acquisition costs by switching its dealer compensation arrangements to revenue-sharing. The margin on that measure of profit expanded to 47.8 percent from 40.6 percent a year earlier.

MegaFon raised its forecast for 2013 Oibda margin, saying it will be as wide as 44 percent compared with a previous projection for up to 43 percent, Chief Financial Officer Gevork Vermishyan told reporters today. MegaFon expects “high single-digit” revenue growth this year, it said in the statement.

MegaFon’s share price reflects enterprise value of 6.1 times 2013 forecast Oibda, while the ratio for MTS is 4.4, according to data compiled by Bloomberg.

The company cut net debt 16 percent during the quarter to 100.8 billion rubles. MegaFon registered a program to sell as much as 60 billion rubles of bonds, though it doesn’t have immediate plans to sell them, Vermishyan said on a conference call.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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