It was reported on September 9 that Dalsvyaz intends to lift its limitless tariffs on local phone calls for all categories of customers, effective from September 20: tariffs on urban and rural phone calls for individual and corporate clients are to be increased in the 11-24% range.
The last time the tariffs of inter-regional phone companies were indexed was in early 2007, when three mandatory tariff plans were enacted throughout Russia. In late 2007 and early 2008 the tariffs were frozen at the initiative of the MRKs themselves, which we linked with the forthcoming elections and reluctance by political forces to fuel inflation.
We are upbeat about the news, given that frozen tariffs are the main reason for the slowdown in the growth of MRKs in 2008. Given that Dalsvyaz managed to raise its revenues by a modest 7.9% y-o-y in 1Q 2008, growth of the tariffs in the 11% to 24% range looks quite justified.
Be that as it may, the company now looks incredibly attractive in fundamental terms. Its P/S2008 ratio now equals 0.46 and its P/E2008 multiple is at 5.8, implying that the company’s market capitalization is now lower than half its revenue, while investments in its shares may take less than six years to recoup, not counting the possible growth in its net profit.
We leave unchanged our BUY recommendation on both types of Dalsvyaz shares. The target price for one common share is USD 6.7 and that for one pref is USD 6.44. Like other MRKs, Dalsvyaz now holds an irresistible appeal in fundamental terms.
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