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MegaFon Predicts Recovering Profit Margin on Mobile-Data Growth

OAO MegaFon, Russia’s second-largest wireless operator, predicted a rebound in profit margins this year after costs for faster networks weighed on earnings in the fourth quarter.

Operating income before depreciation and amortization will be at least 44 percent of sales this year, as revenue is set to expand as much as 8 percent, Moscow-based MegaFon said today. The Oibda margin slumped to 38.3 percent in the fourth quarter from 43.9 percent a year earlier.

MegaFon, controlled by Russian billionaire Alisher Usmanov and part-owned by Sweden’s TeliaSonera AB, built a faster network for the Sochi Olympics and is set to start speedier, so-called 4G+ services in Moscow as demand increases for wireless Web browsing. It also acquired mobile-data operator Scartel for $1.18 billion last year to add wireless spectrum and fend off competition.

“MegaFon slightly missed expectations both on Oibda and net income because of one-off factors such as Sochi and currency losses,” Konstantin Belov, an analyst at UralSib Capital, said by phone. “What’s more important for me is strong 2014 guidance and acceleration of mobile-data revenue growth.”

Shares of MegaFon rose 1.9 percent to $26.75 at 8:30 a.m. in London. They have declined 20 percent this year, giving the company a market value of $16.6 billion.

Mobile Data

MegaFon’s mobile-data revenue rose 40 percent to 15.1 billion rubles. OAO Mobile TeleSystems, Russia’s largest mobile carrier and MegaFon’s main rival in the wireless-data market, is scheduled to report earnings March 18.

Oibda declined 2.9 percent to 30.5 billion rubles ($850 million). Analysts projected 31 billion rubles, the average of seven estimates compiled by Bloomberg.

Sales rose 11 percent in the fourth quarter to 79.7 billion rubles, compared with the average analyst estimate of 78.4 billion rubles. Net income fell 46 percent to 10.1 billion rubles.

MegaFon said it will let Chief Executive Officer Ivan Tavrin to exercise an option to buy a 2.5 percent stake in the company in May, a year earlier than the original vesting date. The company also removed a limit which capped Tavrin’s stake at 5 percent.

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