VimpelCom Ltd., the worst performer among the most-traded Russian shares in the U.S. this year, will probably keep falling as weakening currencies in two of its biggest markets erode earnings, according to IFC Metropol.
Ukraine’s hryvnia has sunk 31 percent since the nation’s bloody standoff with Russia began in November, while the ruble is down 4.6 percent. Those losses, the worst among major eastern European countries, are cutting into the wireless phone company’s dollar-based financial results.
The company yesterday lowered its 2014 sales and earnings targets after trailing analysts’ estimates in the first quarter, citing increased competition and currency declines. VimpelCom, which is listed on the Nasdaq Stock Market, fell 5.4 percent to $7.81 in New York. It was the worst performance on the Bloomberg gauge of the most-traded Russian shares in the U.S, which rose 0.2 percent. The wireless provider has plunged 40 percent this year, compared with the index’s 17 percent decline.
“Investors are now forced to face the reality of currency devaluation in its key markets and weakening consumer sentiment,” Evgeny Golosnoy, an analyst at IFC Metropol in Moscow, said by phone yesterday. “VimpelCom is suffering from negative macroeconomic trends in both markets.”
Golosnoy said he plans to cut VimpelCom to sell from hold. JPMorgan Chase & Co. lowered its recommendation to the equivalent of sell yesterday, data compiled by Bloomberg show.
Revenue and earnings before interest, taxes, depreciation and amortization will drop by a “low to mid-single digit” percentage this year, the company said. It had previously predicted both would be “stable.”
The ruble has gained 5.8 percent from this year’s low on March 14 and traded yesterday at 34.618 per dollar. The hryvnia fell 19 percent during the period to 11.93.
The company, which is controlled by the Russian billionaire Mikhail Fridman, operates in more than a dozen countries. About 39 percent of its 2013 revenue came from Russia, its largest market, data compiled by Bloomberg show. Ukraine was the fourth-largest, accounting for 7 percent of sales.
“We have developed risk management policies to limit foreign currency exchange-rate risk,” Artem Minaev, a spokesman for VimpelCom, said via e-mail today. “We have the biggest exposure to the ruble and our cash positions are hedged for six months forward.”
VimpelCom sank to the lowest since July 2012 on trading volume about 2.9 times the average of the past three months. OAO Mobile TeleSystems, Russia’s biggest mobile phone company, gained 1.5 percent to $17.61 in New York yesterday. OAO MegaFon, the second-biggest, increased 2 percent to $27.35 in London.
VimpelCom’s revenue is expected to decline for a third consecutive year in 2014, falling 6.6 percent to $21.1 billion, before resuming growth in 2015, according to the average estimate of 11 analysts surveyed by Bloomberg.
“VimpelCom will report a decline in revenue this year because of the developments in Russia in Ukraine,” Sergey Libin, a Moscow-based analyst at Raiffeisenbank, who rates the stock hold, said by phone yesterday. “VimpelCom is going to underperform its Russian rivals this year.”
MTS, as Mobile TeleSystems is also known, is forecast to report a 4.3 percent revenue drop to about $12 billion in 2014. The company, Ukraine’s second-biggest mobile service provider, is set to report first-quarter earnings on May 20.
“If the MTS report confirms the negative trends in the Russian and Ukrainian markets, the whole industry will suffer,” IFC Metropol’s Golosnoy said. “Investors are no longer enthusiastic about telecommunications in Russia as economic growth slows and consumers begin to feel that.”
Russia’s first-quarter economic growth slowed to the weakest in a year as the standoff against the U.S. and its allies over Ukraine shrivels up investment. Gross domestic product advanced 0.9 percent in January-March from a year earlier after a 2 percent gain in the previous quarter, the Moscow-based Federal Statistics Service said in an e-mailed statement, providing its first estimate of first-quarter GDP. That was above the 0.7 percent median estimate of 19 economists in a Bloomberg survey.
Sergey Lavrov, Russia’s foreign minister, said in an interview with Bloomberg television in Moscow yesterday that Ukraine is sliding into a civil war that will make it impossible to hold legitimate presidential elections scheduled for May 25.
Ukraine’s government and its allies in the U.S. and the European Union say Russia is behind the unrest in Ukraine’s easternmost regions. The pro-Russian separatist groups there were excluded from the national unity talks that started in Kiev yesterday, aimed at easing tensions before the vote.
The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund tracking the nation’s biggest companies, increased 1.1 percent to $24.53 yesterday. The RTS Volatility gauge fell 1.2 percent to 29.34, while RTS index futures gained 0.2 percent to 123,590 in U.S. hours.