Our opinion:
This placement of bonds is the final step in the process of organizing financing of large-scale transformations of the operator and eliminates uncertainty regarding the sources of funding for the acquisition of a stake in the JV Tele2-Altel. We expect a positive impact on the value of Kazakhtelecom’s shares, which have declined significantly over the past few months, including the need to attract significant amounts of funding.
We also note that as the result of a decline in the market value of Kazakhtelecom’s shares (-28% since the beginning of the year) and an increase in the value of Kcell’s shares (+ 8.5% since the beginning of the year), currently Kcell’s market capitalization (KZT398bn) significantly exceeds the market capitalization of Kazakhtelecom (KZT251.6 bn).
Currently, the market value of 75% of Kazakhtelecom’s share in Kcell is KZT298 500mn, which is higher than the entire market value of Kazakhtelecom’s share capital. At the same time, Kazakhtelecom acquired Kcell’s shares at a price of about 1 100 KZT per share (the total cost of a 75% stake was 165 bn KZT), and the current market value of Kcell’s shares is KZT1 990 (KZT298.5 bn). The difference between the acquisition cost and the current value is KZT133.5 bn.
In addition, Kazakhtelecom fully consolidates the JV Tele2-Altel, which costs KZT209 bn, and has its own business with a virtually monopolistic position in the fixed-line market.
We believe that the current decline in the market value of Kazakhtelecom’s shares provides a good opportunity to buy shares of the Company. We note that the Company is demonstrating an improvement in fundamental indicators due to the consolidation of the JV Tele2-Altel, as well as through the acquisition of Kcell. We expect significant operational synergies when combining two mobile operators, development of the Company in new business areas and implementation of large-scale projects related to the deployment of 5G networks. We maintain our recommendation to Buy Kazakhtelecom’s shares with 12M TP 30 130 KZT/share.
