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. Last Updated: 07/27/2016

MTS Q1 Results Disappoint

Itar-TassLeonid Melamed
Russia's top mobile phone operator, Mobile TeleSystems, on Thursday reported another set of disappointing quarterly results after weak performance led the company to hire a new chief executive.

New York-listed MTS said it earned a net profit of $184.4 million in the first quarter, below market expectations of $234.1 million and short of the company's fourth-quarter earnings of $242.6 million.

Revenues were $1.289 billion, down from $1.333 billion in the fourth quarter.

MTS, controlled by services conglomerate Sistema, hired Leonid Melamed -- former chief of Rosno insurer, which belongs to Sistema -- as chief executive in April to replace Vassily Sidorov, who quit after poor fourth-quarter results.

MTS has launched a rebranding campaign, but that has failed so far to lift its share price relative to nearest rival VimpelCom. MTS shares are down 22 percent to date this year, while VimpelCom's are down 5 percent.

Troika Dialog said MTS's shares looked seriously undervalued, given the upcoming operational changes. "The company's stock is now trading at a nearly two-year low of $27.27, which we do not believe is justified," the brokerage said in a research note Thursday.

Earnings before interest, taxation, depreciation and amortization were $598.6 million, below analysts' forecasts of $623.7 million and $613.1 million in the fourth quarter. The company's EBITDA margin, a key measure of operational efficiency, rose to 46.5 percent from 46 percent in the previous quarter but came up short of analysts' average forecast of 48.7 percent.

Analysts prefer to compare quarter-on-quarter results due to the fast-changing nature of the telecoms market.

Average revenue per user in Russia, MTS's core market, was $6.20, while the market expected it to be $6.70. The equivalent revenue in Ukraine amounted to $7.50, compared with a forecast $7.60.

According to market researchers AC&M, MTS had 65.4 million customers at the end of the first quarter. 2.3 million in Belarus were not consolidated into its results.

In the first quarter, its client base grew by 2.9 million, compared to an increase of 7.9 million in the fourth quarter of 2005, reflecting increasing saturation in its core markets.

The first quarter is traditionally the weakest quarter in terms of new subscribers, Deutsche UFG said in a research note.

The first three months are also known for seasonally weak usage and roaming figures, due to the cold weather and the long New Year and Christmas holidays, Deutsche UFG said Thursday.

(Reuters, MT)