Daily analyst comments

On March 20 phone company Sibirtelecom posted its FY 2007 financials audited to IFRS. We point out that financial results under IFRS are the most effective yardstick to measure operations in a company with significant subsidiary businesses, such as Sibirtelecom. The published results confirm this.

Earlier, we pointed to the comparatively robust growth of the company's revenue under RAS (see March 17). That statement, however, did not cover the company's subsidiaries, in particular, its mobile business. We expected faster growth on the company's cellular business than on its fixed-line operations, but the results brought unpleasant surprises. The company's FY revenue on mobile business only rose by a modest 10%, falling markedly short of our expectations.

In our view, the reason for such a serious deviation lies in the fact that Sibirtelecom began to lose its market share to federal players slightly earlier than originally thought. We expected stagnation in the company's revenue on this type of business to begin in 2009, which was to be followed by a downswing in the subsequent years. It seems, however, that the ‘big-3' companies on the market began to exert strong downward pressure on the company's ARPU during 2007.

Sibirtelecom: FY 2007 financial results under IFRS

On the other hand, the company's EBITDA margin rose by a hefty 9%. We are upbeat on such growth and now expect steady growth in this figure over the entire forecast period, due to last until 2016. In absolute terms, EBITDA appears to be close to our projections.

The net profit missed our expectations, which may have a moderately negative effect on the company. That said, it should be noted that profit did rise by a more than 100% y-o-y.

However, we expect the company's cellular business to shrink in the long-term, which is why we reiterate our BUY recommendation on the company's common and preferred shares, with respective target prices for the shares of USD 0.17 and USD 0.11.