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bne TMT weeklyExecutive Summary:
This is bne's Telecommunications, Media and Technology newsletter, a list of the top stories in Emerging Europe this week. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options: click here: | ||
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| 1. Avast ye! Putting a brake on CEE tech IPOs |
| Nicholas Watson in Prague |
| July 27, 2012 Avast Software's decision to pull its Nasdaq IPO just days before it was due to be priced is a blow to those who had hoped the international offerings from AVG Technologies and EPAM Systems earlier this year signalled a new foreign investor interest in Emerging Europe's fast-growing technology companies. As bne first reported on July 26, the anti-virus software provider Avast postponed its IPO due to what a spokeswoman described as the "overall bad market conditions." Avast had been expected to issue 9m shares, which if priced at the mid-point of the $9-11 per share range, would have raised $90m and valued the Dutch-based company though like AVG it has its roots in the Czech Republic at €846m. Certainly, the recent rise in turmoil on European markets over rising worries about the economic situation in Greece and Spain sounded the death knell for the planned US IPOs by Avast as well as several others, such as Manchester United and Fender the guitar maker. However, in truth the equity markets have been souring for some time on IPOs from tech companies out of Central and Eastern Europe. AVG, which listed on the New York Stock Exchange in February, has seen its shares fall 37.5% below their IPO price, while the shares of EPAM, which also listed on the NYSE the same month, are back to near where they listed at after having fallen about 65% from their post-IPO peak. In May, the planned IPOs from Russian mobile phone operator Megafon and the country's largest social network Vkontakte were both postponed. Megafon blamed the delay of its listing from July to September on poor market conditions (though many wonder question if that's realistic), while Vkontakte often called the "Russian Facebook" said the debacle surrounding the US social media giant's own IPO damaged its prospects. "The Facebook IPO destroyed the faith of many private investors so [Vkontakte's] IPO is postponed for an indefinite term," Vkontakte founder Pavel Durov wrote on his Twitter page. J.R. Smith, CEO of AVG Technologies, says that the IPO situation for CEE tech companies is likely to get worse before it gets any better. "We are a European software company and we are pretty close to what is going on here, and start-ups and those companies looking for additional capital investment will find it tougher for sure over the next 12 to 18 months." "By the time these tech companies are ready to be acquired or acquire, they will be able to take the next step for their growth, as hopefully some of today's turmoil will have past," Smith adds. However, as Smith and others note, there will still be venture capital available for good companies with strong business models and revenues, as such investors are looking at a longer-term horizon for these investments. According to Fast Lane Ventures, a Russian developer and incubator of internet companies, there were 59 deals in the Russian internet market in 2010, raising a total of $225 million; by 2011, the number of transactions had increased to 215, raising $540 million. However, even this is a probably an underestimate. "The Russian internet market continues to be opaque," Andrey Kulikov, senior investment analyst at Fast Lane Ventures, said in a June research report on the financing of Russian internet companies and start-ups between 2010 and 2011. "We are aware of at least 100-150 seed investments completed by businesses and non-public holdings, and 20-30 major investments whose financial information is completely closed." Taking into account these hidden deals, Fast Lane Ventures estimates the total investment volume in Russian internet companies and start-ups at approximately $500 million in 2010 and $1 billion in 2011. |
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| 2. Russias Sberbank to invest RUB175bn in tech clusters |
| bne |
| 27 July 2012 Russias biggest bank state-owned Sberbank says that it will invest up to ($5.8bn) into developing technology clusters in the region through to 2014 as part of the governments plans to modernise the country. The idea is to support the industrialisation and manufacturing base by introducing better technology. Ulyanovsk, Kaluga and Lipetsk regions and in the republic of Tatarstan have already begun developing tech parks as part of their efforts to attract more investment. Sberbank will match up to half 50% of private investments under the new program for the country. Sberbank will invest RUB100bn in the creation of 30 parks by 2014 and will launch special loans for private industrial clusters in 2013. |
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| 3. Beer producers cut 1H12 TV advertising budgets in the run-up to full ad ban |
| Renaissance Capital |
| July 23, 2012 Event: Kommersant today (23 July) reports, citing a study by Aegis Media, that in the first six months of 2012, beer producers cut their TV advertising budgets by between 4% and 89% vs 1H11. As of today, new legislation comes into effect fully banning advertising of beer on TV, radio, internet and outdoor. Up until today, beer advertising was permitted on TV between 10pm and 7am and some market participants had predicted that producers would boost advertising spending through the period running up to the outright ban. Action: This may have a slight negative impact on sentiment, but in our view neutral for CTC. Rationale: In 1Q12, beer advertising accounted for only 3% of total ad spending across CTC's channels, down from 6% in 1Q11; as such, we feel any effect on 2Q12 from lower beer ad spend should be limited and already priced in. Overall, we expect, as the company has already flagged, CTC's 2Q12 results to be soft on the back of falling audience share for its main CTC channel due to the lack of new premieres through the quarter. CTC plans to launch a number of new shows in 3Q12, the impact of which we expect to come through in improved numbers only in 4Q12. |
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| 4. Googles Russian revenue up 80% in 2011 |
| bne |
| 27 July 2012 Russian search engine Yandex has been leaving global search titan Google in the dust in terms of the number of queries in Russia, but the US company is making decent money anyway. Google reported that revenues from its Russian operations were up 80% in 2011 last week, to RUB6.8bn ($227m), as calculated under Russian Accounting Standards (RAS). Still, Russia remains a drop in the ocean compared to the companys global income. Google's consolidated revenue calculated under US GAAP rose by 29.3% in 2011 to $37.9bn, while the net profit reached $9.7bn, up 14.5% on the year, and the company's net profit margin was registered at 25.7%, Vedomosti reported. Yandexs revenue was up 61.8% to RUB21.3bn under RAS over the same period and net profit was up by 46.0% to RUB6.56bn in the same period. |
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| 5. Russias first Muslim TV to go on air in August |
| RIA Novosti |
| July 26, 2012 Russias first public Muslim TV channel, Al-RTV, will go on air in August, Damir Mukhetdinov, the first deputy chair of the Spiritual Directorate of Muslims of European Russia said on Wednesday. The project will be financed through personal savings of the Al-RTV project's founders, and donations from individuals and businesses, he said. Possibly there will also be some state support, Mukhetdinov said. The channel will be included in a bundle of satellite channels broadcast by Tricolor TV, Russias most popular satellite TV operator. |
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| 6. Medvedev top Russian tweeter |
| bne |
| 27 July 2012 Russian prime minister Dmitry Medvedev has more followers on Twitter than any other Russian politician and is amongst the world leaders busiest tweeters. President Vladimir Putin, by contrast, is amongst the least engaged of all Russian politicians in social media, reports Burson-Marsteller. The PR agency studied 264 accounts belonging to presidents, prime ministers and their offices in 125 countries. The report said "Medvedev is one of the most connected world leaders," noting that he subscribes to Twitter messages from seven other heads of state or government, who in turn subscribe to, or "follow," him on Twitter. By comparison, U.S. President Barack Obama follows only two other world leaders, Medvedev and Norwegian Prime Minister Jens Stoltenberg, reports the Moscow Times. World leaders€ Twitter followers as of Thursday afternoon U.S. President Barack Obama17,859,329 Venezuelan President Hugo Chavez3,236,376 The U.S. White House2,986,586 Jordanian Queen Rania2,206,811 Turkish President Abdullah Gl2,043,697 British Prime Minister David Cameron2,038,287 Mexican President Felipe Calderon1,955,593 Turkish Prime Minister Recep Tayyip Erdogan1,651,182 Brazilian President Dilma Rousseff1,561,234 Russian Prime Minister Dmitry Medvedev1,342,803 Argentine President Cristina Fernandez1,194,375 Colombian President Juan Manuel Santos1,129,672 The Russian president€™s executive office529,108 Russian President Vladimir Putin51,454 Source: MT read more |
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| 7. Teamo.ru Proves its Position as a Market Leader |
| Fast Lane |
| 25 July 2012 Teamo.ru, the online dating website helping to match people looking for a more serious relationship, has strengthened its position in the market. The company is pleased to report significant recent achievements. When compared to May results, June numbers have grown considerably: company sales have increased three times and the active users base has doubled. According the web information company Alexa, Teamo.ru is ranked ?1 in the segment of serious dating sites in Russia. Having raised money from United Managers Jupan (Russia) in February 2012, the Teamo.ru team invested the funds to further enhance the service and commence a new marketing campaign which aims to win more users and raise brand awareness. Furthermore, the company is constantly working on improving usability in order to enhance customer experience and convenience. |
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| 8. Fast Lane Ventures Provides Russian Customers with Unique Financial Service IQCard |
| Fast Lane |
| 25 July 2012 Fast Lane Ventures has unveiled a new company this month, IQcard. The company is based on the unique business model for the Russian market helping people to manage their money more effectively, through clear and accessible financial products and services. IQcard distributes and maintains prepaid cards for customers of international payment systems VISA and Master Card, offering convenient and secure services for individuals and legal entities, without the need for opening a bank account. One of the goals of the company is to simplify the process of financial management, in order to increase the financial awareness of its customers in Russia. IQcard is headed by Ekaterina Konovalova who has 11 years experience in the development of high tech banking product launches in B2B and B2C sectors, the organization of distance payment services, sales, marketing and business process optimization. Ekaterina has implemented several successful start-ups and participated in the creation of credit institution LEADER (transborder payment system), which has become one of the major players in the international remittance market. |
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| 9. RentHome Raised Clever Money to Expand its Presence in Regions |
| Fast Lane |
| 25 July 2012 RentHome.ru, the online resource for independent travelers offering a wide selection of short-term vacation rentals across Russia and the CIS, has closed investment round of about $1 million. Participants in this round include investors from the real estate and finance markets, Fast Lane Ventures, and Russian and foreign entrepreneurs. This is the investment of smart money which is providing Renthome.ru with additional value as the new investors are not only putting money in the company, but they are also helping to develop the business. The majority of funds will be allocated to developing a regional network and to marketing. Apart from Moscow, Renthome.ru will expand its physical presence into 10 more Russian cities and 1 city in Ukraine. There will be at least one regional representative of Renthome.ru operating in every city. For the moment Renthome.ru has nearly 17,000 active properties (including up to 2,000 European properties) which are located in over 700 Russian, CIS and European cities and towns and aims to have as many as 25,000 properties on offer by the end of the year. |
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| 10. VimpelCom to enter Myanmar? |
| Renaissance Capital |
| July 24, 2012 Event: According to Vedomosti today (24 July), VimpelCom is considering entering Myanmar's mobile market. Currently the market is closed to foreign operators, but the government is planning to allow Myanmar Post and Telecommunications (MPT) to form JVs with local and foreign companies. In addition, the government plans to allow foreign operators to participate in partial privatisation of telecoms assets in Myanmar. Action: We think investors will not welcome VimpelCom's expansion into Myanmar, if it indeed happens. Rationale: On the face of it, Myanmar's market looks attractive, given only 1.5% mobile penetration and a 58mn population. However, VimpelCom's track record in South-East Asia is poor. The operator has had to pull out from Vietnam, having sold its operations at a loss, and write off investment in Cambodia. We think VimpelCom would do better to focus its strategy on its core existing markets such as Russia, Italy, Ukraine, Pakistan andBangladesh, especially given its relatively high leverage. We note the potential risks of doing business in Myanmar, where politics and the legal framework could be unstable. In addition, the incidence of poverty in Myanmar is very high, hence ARPUs are likely to be low. |
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| 11. MTS to return to Turkmenistan after an absence of nearly two years |
| Alfa Bank |
| July 27, 2012 MTS announced yesterday that it has signed an agreement with TurkmenTelecom that allows MTS to resume operations in Turkmenistan. The agreement will last five years with an option to be extended for another five years if certain conditions are met. MTS obtained a three-year GSM and 3G license and will pay 30% of its net profit, as calculated by local accounting standards, to TurkmenTelecom. We consider the news generally POSITIVE for MTS, although we think the company will need time to bring cash flow and profits back up to the level seen before its operations in Turkmenistan ceased in December 2010. |
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| 12. AFK Sistema: Indian spectrum pricing may force Sistema to leave Indian mobile market |
| UralSib |
| July 25, 2012 Pan-Indian CDMA license could cost $3.5 bln under new proposal. Indias empowered group of ministers (EGoM), which is in charge of the upcoming auction for 2G licenses, has recommended lowering the initially proposed starting price by 20%, Economic Times reported yesterday. It also revised the recommendation for CDMA frequency prices in the 800 MHz band. The final decisions on the terms of the auction could be announced in two-three weeks, while the deadline for the auction has been set for 31 August. For CDMA operator Sistema Shyam Teleservices (SSTL), 57% owned by AFK Sistemas (SSA LI Buy), this implies a cost of roughly $3.2-3.5 bln to restore its pan-Indian license, which could still force the company to exit the Indian market. SSTL remains cash-flow negative. Despite investing roughly $3.5 bln in SSTL since entering the Indian market in late 2007, Sistema remains unprofitable. In 1Q12, the company reported revenues of $81 mln and an OIBDA loss of $72 mln and although SSTL is growing at a slightly faster pace than the broader market, its share accounted for only 1.1% of the active subscriber base as of May. In February, Indias Supreme Court cancelled 122 mobile licenses, including 21 held by SSTL and later the authorities said that the starting price for the auction of the pan-Indian license could amount to roughly $6 bln, which prompted Sistemas president Mikhail Shamolin to comment that the company would leave the market should the price remain unchanged. Indian exit should be positive for Sistemas portfolio. The price proposed by EGoM indicates that Sistema will probably decide to leave the Indian market or to reduce the scale of its business, which could be positive for the company in the long term, as SSTL is unlikely to create value for the holding. We therefore reiterate our Buy recommendation for Sistema, which offers 37% upside to our SOTP target price of $27/GDR. |
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| 13. Russian mobile phone company MTS resumes operations in Turkmenistan, in trouble in Uzbekistan |
| bne |
| 27 July 2012 The lure of the legendary Silk Road countries has appealed to Russias leading mobile phone company MTS, but the Republics are no less dangerous a place to do business in as they were in Marco Polos day. Last week MTS announced it was returning to Turkmenistan after its operations were suspended in December 2010 but saw its Uzbek country manager arrested in a mounting scandal that may see the company forced out of what is Central Asias most populous country. The Turkmen authorities ordered last week that MTS resume operators, the operator said in a statement on Thursday. In late 2010, the Turkmen government canceled licenses of MTS' 100% subsidiary Barash Communications Technologies Inc. (BCTI) and ordered the company to void its contracts and dismantle equipment. Now all the disputes over the operator's activities in Turkmenistan are settled, MTS said. MTS said that its infrastructure facilities in Turkmenistan allow the operator to quickly restore the network and start providing all previous services to more than 2.4 million subscribers. However, in the same week MTS reported that its country manager in Uzbekistan had been arrested on fraud charges, which comes only weeks after the government ordered the company to shut down several hundred base stations. |
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| 14. Uzbek prosecutors say investigation against MTS unit legal |
| bne |
| July 24, 2012 Uzbekistans General Prosecutors Office denied on July 21 the statements of Russian mobile operator MTS that the investigation of criminal cases against top managers of MTS unit, cellular operator Uzdunrobita, did not comply with existing legislation, Prime reported. The Uzbek authorities accused Uzdunrobitas CEO Bekhzod Akhmedov, who reportedly has fled the country, of creating an organized crime syndicate aimed at embezzling uncontrolled funds. Uzbek General Prosecutors Office issued arrest warrants for several recently appointed Uzdunrobitas top managers on the suspicion of embezzlement and tax evasion. In response, MTS officially applied to the Uzbek authorities asking to terminate the investigation, saying that probe is being conducted in violation of several laws. A source in MTS said that actually, a hostile takeover of the business is happening, Russian business daily RBC Daily reported earlier in July. The source said that the character of inspections conducted shows that law enforcement entities are conducting the due diligence of the company, as the depreciation of the asset will force MTS to sell its business at a marginal price to the benefit of third parties connected with the current Uzbek authorities. |
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| 15. Rostelecom to consider conversion of preferred shares |
| Alfa Bank |
| July 26, 2012 According to RBC Daily, Rostelecom will consider converting preferred shares into common at the next Board of Directors meeting. As per the paper, one of the major issues will be keeping the governments stake in the company unchanged. This conversion could only take place after the completion of Rostelecoms reorganization and merger with Svyazinvest in early 2013. We view this news as generally POSITIVE for Rostelecom, though we think it is a little too early to take any action on both preferred and common stock. |
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| 16. VimpelCom, MTS: VimpelCom more attractive as risks rise for MTS |
| UralSib |
| July 26, 2012 Possible loss of MTSs Uzbek business makes VimpelCom more attractive. MTS shares have outperformed VimpelCom by 43% YtD, as the latter was considered a riskier exposure to Russian telecoms, which was also our view. However, MTS no longer looks more attractive on its risk/return profile, following its outperformance and the recent developments with its Uzbekistan subsidiary, a substantial part of its business which it looks likely to lose. VimpelCom has risks of its own, especially those related to the potential conversion of prefs into commons in late October; however, we believe that these risks have been overestimated by the market, making VimpelCom shares more attractive at this point. Buy VIP, Hold MTS. VimpelCom is currently traded with 52% upside to our target price of $12/ADR and at a 2012E EV/EBITDA of 3.8, implying a 14% discount to MTS. We believe that the discount is unjustified, even considering the potential conversion of its preferred shares into commons in late October, as the conversion will take place at the market price and should not cause material dilution of minorities. In addition, VimpelCom minorities still have a chance to be paid a dividend of $0.35/ADR by the yearend, implying an additional 4.5% yield. In contrast, MTS has no upside potential to our 12-month target price of $17/ADR and we see downside risk of 5% to our valuation due to the Uzbekistan issue. Hence, we recommend investors to switch from MTS into VimpelCom, using weakness in the name to build a position by October. |
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| 17. Mail Group - Facebooks 2Q12 results due |
| Renaissance Capital |
| 25 July 2012 Facebooks 2Q12 results due Thursday (26 July): Facebook (not rated) is scheduled to publish its 2Q12 financial results on Thursday after the US market close. The company will host a conference call at 17:00 (EST), available via www.investor.fb.com. Consensus forecasts 2Q12 revenue up 30% YoY to $1.16bn and adjusted EPS of $0.11. Mail owns 37mn Facebook shares, worth $1,064bn. Mails core business is strong: We understand the internet advertising market remained strong during 2Q, despite tough YoY comparables. Furthermore, we believe Mail should continue to see strength in its Community IVAS revenue, which accelerated in 2H11. Even taking into account a more uncertain economic outlook in 2H12, we see upside risk to the companys FY12 35% constant currency revenue growth guidance at its 1H12 results (date TBC). We think top-line outperformance, especially in Community IVAS, should drop through to the bottom line, so we also see scope for Mails EBITDA profitability to surprise on the upside. We currently forecast 37% YoY constant currency revenue growth for Mail and a 50% EBITDA margin for FY12. Mail underperformed Yandex and Tencent: Mails shares have underperformed Yandexs (HOLD, TP $23.0, current price $19.0) by 16% over the past month, and underperformed Tencent's (not rated) by 8%. As a result, Mail is trading at a discount to Yandex of 29% on 2013E EV/EBITDA, on our estimates. We think this discount should narrow with Yandexs multiples contracting, given the companies similar medium-term growth outlook and we prefer Mails more-diversified business model. Mail trades at a 41% discount to Tencent on 2013E EV/EBITDA (based on our existing forecasts for Tencent, as part of our forecasts for Naspers [BUY, TP: ZAR575/share, current price: ZAR447/share]), which also seems overdone to us given the potential for Mail consensus forecasts to rise and even taking into account the more-favourable competitive environment in which Tencent operates. Assuming Facebook results are in line with consensus, we see scope for Mail shares to outperform thereafter. We have updated our $/RUB forecasts to 32.2 (from 31.1 previously) and as a result, our target price has decreased to $47/share (from $48/share previously). |
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| 18. Mail.ru: Zynga reports 2Q12 results |
| Renaissance Capital |
| July 26, 2012 Event: Zynga (Not Rated) reported its 2Q12 results yesterday (25 July) after the US market closed. During the period under review, total revenue increased 10% YoY to $332mn (below Bloomberg consensus estimates of $343mn), while adjusted EBITDA was unchanged YoY and amounted to $65mn (equivalent to a 20% EBITDA margin vs 23% in 2Q11). Adjusted net income was down 88% YoY to $5mn (below Bloomberg consensus estimates of $50mn). For 2012, the company lowered its previous guidance to reflect the delays in launching new games for a 1-7% YoY increase in bookings (vs the 25-32% management forecast growth previously) or $1.15-1.225mn. Shares in Zynga were up 3.3% during trading but decreased 42% in the aftermarket. Action: Neutral for Mail.ru, in our view. Rationale: Mail.ru owns a 1.2% stake in Zynga, worth $43mn. The value of Mail.rus stake in Zynga is equal to 0.7% of Mail.rus market cap. We see upside risk to the companys FY12, 35% constant currency revenue growth guidance at its 1H12 results (date tbc). We also see scope for Mails EBITDA profitability to surprise on the upside. We currently forecast 37% YoY constant currency revenue growth for Mail and a 50% EBITDA margin for FY12. Mail.ru shares trade at 10.1x and 8.1x 2012E and 2013E EV/EBITDA, respectively, while Yandex shares trade at 13.4x 2012E and 11.1x 2013E EV/EBITDA. We think this discount should narrow with Yandexs multiples contracting, given the two companies similar medium-term growth outlook, and we prefer Mail.rus more-diversified business model. |
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| 19. Yandex - Weekly search share data |
| Renaissance Capital |
| July 24, 2012 On Monday (23 July), LiveInternet released its Russian internet search engine market share statistics for 16-22 July. During the week under review, the search shares of Yandex, Google and Mail.ru were 60.6%, 26.6% and 8.0%, respectively. Yandexs share is stable: Yandexs share is in line with its four-week average and slightly above its three-month average of 60.4%. Googles share of search is in line with its four-week average and slightly above its three-month average of 26.3%. Mail.rus current share is also in line with its four-week average but slightly below its three-month average of 8.2%. Yandexs share on Google Chrome is strong: Yandexs search share on the Google Chrome browser is 46.0%, above both its four-week average of 45.6% and its three-month average of 45.3%. Googles share of search among Chrome users stands at 39.6%, slightly below its four-week average of 39.8% but in line with its three-month average, while Mail.rus share stands at 10.2%, in line with its four-week average but significantly below its three-month average of 10.9%. Chromes share of the browser market has stabilised at just over 20%, following rapid growth during 2011. In mobile, Yandexs share on the Android platform has increased to 36%, from 31% at the beginning of the year, while Googles share has decreased to 61%, from 67% at the beginning of the year. Yandex should report strong 2Q12 results: Yandex is to report 2Q12 financial results on Tuesday, 31 July. We expect 2Q12 YoY revenue growth to slow only slightly (vs +46% YoY in 1Q12) and YoY EBITDA profitability to improve, which should be positive for shares in Yandex. Having said that, we also expect Mail.ru (BUY, TP: $48, current price $31.8) to report strong 2Q12 results, and see scope for Mail to upgrade its FY12 revenue growth guidance of 35% YoY and confirm the return of cash to its shareholders. Yandex shares trade at 12.8x and 10.6x 2012E and 2013E EV/EBITDA, respectively, while Mail.ru shares trade at 10.7x 2012E and 8.6x 2013E EV/EBITDA; given the discount at which Mail.ru trades, we are more positive on shares in Mail than Yandex. |
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| 20. Vk.com FY11 financial estimates |
| Renaissance Capital |
| July 24, 2012 Event: Today (24 July), Vedomosti reports that, according to the SPARK Interfax analytical database of Russian companies, social network Vk.coms RAS revenue in 2011 amounted to $112mn, which represents 42% YoY growth in rouble terms, while net income was $18mn (14% YoY growth in rouble terms). Mail.ru (which holds a c. 40% stake in Vk.com) in turn reported $516mn in revenue in 2011, which represents 56% YoY growth in rouble terms. Vk.com is the most popular Russian social network, with an audience reach of 82%, according to TNS. It has more than 160mn registered users. Facebook still lags behind Vk.com, with about 6mn registered users in Russia. In addition, users engagement in terms of average time spent on Facebook is lower than for Vk.com:12 minutes per day vs28 minutes, according to Google AdPlanner. Mail.ru shares trade at 9.6x and 7.7x 2012E and 2013E EV/EBITDA, respectively, while Yandex shares trade at 12.4x 2012E and 10.3x 2013E EV/EBITDA. We expect Mail.ru to report strong 2Q12 results, and see scope for Mail to upgrade its FY12 revenue growth guidance of 35% YoY and confirm the return of cash to its shareholders. Given the discount at which Mail.ru trades, we are more positive on shares in Mail than in Yandex. |
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