Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Merger Sends Telecoms Shares Up

As Svyazinvest's plan to merge its regional subsidiaries moves forward, shares in those companies are rising dramatically -- with one company leaping nearly 150 percent in just three months.

Share prices grew on average between 50 percent and 100 percent in the last month. Furthermore, trading volumes this January are 10 times higher than in the same month last year.

Shareholders have mostly approved the Svyazinvest holding's plan to unite hundreds of small operators into seven large companies, one in each macro-region, a move cheered by investors.

In January, shares in Perm-based Urals Telekom, formerly known as Uralsvyazinform, have grown 60 percent. The central region's Center Telecom, the Volga-based Southern Telecommunications Co., or YTK, and the Greater Volga Operator have all seen growth of around 50 percent.

Shares in Center Telecom have leaped by 146 percent in the last three months -- the most dynamic rise.

Urals Telekom and Dalsvyaz in the Far East are set to be the first macro-regional companies to emerge from Svyazinvest's unification. Their new, unified shares are expected to hit the Russian Trading System sometime in the second half of 2002.

Analysts say investors are cheery because Svyazinvest's reform is going according to plan and the government has promised to carry out tariff reform.

Svyazinvest says the growth so far is due to speculation. "The price of the shares and the coefficient conversion are being driven by speculation," said Sergei Chernogorodsky, head of the department of investor relations and development of the secondary share market. The real potential for growth has not been realized, he said, adding that Svyazinvest hopes speculation will give way to real investor interest.

A premium will be included in the share price, which investors will offer as part of the shares in the consolidated company, he said.

"Investors so far do not have information about the transformation that we will be carrying out," Chernogorodsky said. "It is difficult to give an objective evaluation of the share price growth that will result from the unification."

The transformation into seven macro-regional operators, however, is still in the planning stages, and analysts say that some companies in European Russia are overvalued.

Alexei Yakovitsky, an analyst at United Financial Group, said that according to some indicators, Center Telecom and operators in the northeast are approaching the financial health of No. 1 cellular operator Mobile TeleSystems. "This is totally unfounded considering regulation of tariffs, the companies' low liquidity, little transparency, a lack of international accounting standards and corporate managerial problems," he said.

Center Telecom shares are already 10 percent overvalued, said Yevgeny Golosnoi, an analyst at Troika Dialog, while North-West GSM shares are overvalued by 16 percent and the United Urals Operators' shares are inflated by 20 percent. YTK shares are at a fair price, while the Greater Volga Operator is underrated by 20 percent.

Operators in Siberia and the Far East have room to grow: The Siberian operator is undervalued by 40 percent, and Dalsvyaz is undervalued by 60 percent.

Analysts said that operators won't see such growth after the reform is completed. "After the consolidation, there will be a price rise as a result of more liquidity, but it won't be explosive because the companies are overrated," said Vyacheslav Nikolayev, an analyst at Renaissance Capital.