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We are relatively neutral on the new back-tax claims against MTS: on the one hand, additional tax charges have become a common practice in the telecommunications market; on the other hand, their size is relatively insignificant for the company.
On July 22, the media, with reference to an official company announcement, published information that MTS had received back-tax claims for 2005-2006 for a total of RUB 1.13 billion, or nearly USD 49 million, including RUB 144 million (about USD 6 million) of fines and penalties. Most of the claims are related to inter-carrier settlements, a company spokesperson said.
Although the news is of a negative nature, we do not expect it to have a considerable impact either on the company’s financial health or on its market valuations. In recent years, almost all large mobile operators, including subsidiary companies of the state-controlled Svyazinvest, have received back-tax claims related to traffic transit somehow or other, and a lot of these claims were challenged in court. Moreover, in this particular case, the amount of USD 49 million is relatively insignificant for the operator whose market cap exceeds USD 28 billion.
Our recommendation for MTS shares is currently under review.
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MTS
Capitalization: $13 554 617 738,40
Common shares:
Price: $6,80
Target price: $15,34
Recommendation: Buy
Delta week: -23,3%
Delta month: -29,8%
Delta year: -43,9%
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11.8
12.74
