MegaFon Ends Two-Day Decline as Raiffeisenbank Raises From Sell

  • Russian wireless carrier offers hedge against oil, bank says
  • Stock has slid 29 percent from this year's high in February

MegaFon PJSC, Russia’s second-largest phone operator, rose for the first time in three days in London as AO Raiffeisenbank raised the stock to hold after the company boosted interim dividends, narrowing the full-year payout gap with its larger competitor Mobile TeleSystems PJSC.

The global depositary receipts advanced 0.8 percent to $13.50, reducing their decline from this year’s high in February to 29 percent. The Bloomberg Russia-US Equity Index slid 0.8 percent to 50.44 in New York.

Raiffeisenbank raised MegaFon from sell after the company said in October it will pay an interim dividend of 40 billion rubles ($619 million), up from an earlier projection of at least 30 billion rubles. High interim payouts along with potential for organic free cash flow generation and limited international risk give investors a hedge in the short term as the drop in oil prices and a decline in the ruble put pressure on the market already pinched by international sanctions, according to Raiffeisenbank analyst Sergey Libin.

“Until the end of 2015, MegaFon can be viewed as a safe haven and one of the best defensive plays in the market,” Libin, whose recommendations on the stock have been the most accurate among 16 analysts and produced a 19 percent return for investors who followed them in the past year, said by phone on Monday. “From the valuation perspective, MegaFon doesn’t look as expensive as it did a few months ago.”

Dividend Yield

MegaFon’s interim dividend yield, or the payout per share as a percentage of the share price, stands at 7.5 percent, compared with about 2 percent for MTS, Libin said. MegaFon trades at 10.9 times projected 12-month earnings, down from a ratio of 13 in April, data compiled by Bloomberg show. American depositary receipts of MTS tare priced at 6.8 times projected earnings.

MegaFon last month forecast operating income before depreciation and amortization of at least 41.5 percent of sales for 2015, compared with previous guidance for at least 40 percent. Third-quarter revenue rose 0.3 percent to 81.3 billion rubles after a decline in the first half.

MTS dropped 1.6 percent to $6.78 in New York. The Market Vectors Russia ETF, the largest exchange-traded fund tracking the nation’s stocks, slid 1.3 percent to $16.67. Futures on the RTS Index expiring in December slid 0.7 percent to 84,790 in U.S. hours.

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