VEON Ltd. (NASDAQ: VEON) is a NASDAQ and Euronext Amsterdam-listed global provider of connectivity and internet services, with an ambition to lead the personal internet revolution for over 240 million customers it currently serves, and many others in the years to come.
On May 14th, VEON announced financial and operating results for the quarter ended 31 March 2018. The company had a strong start to 2018, highlighted by good organic growth, both in revenue and EBITDA as well as good cash conversion and had an equity free cash flow of $334 million, excluding licenses. Moreover, besides, the management has also confirmed the guidance that it gave in February for 2018.
As per management, VEON delivered good organic performance across its core markets. The company experienced normalization in EBITDA performance in its largest market, Russia, following a more difficult fourth quarter. The company’s performance in Algeria and Bangladesh remains under pressure, but there is an indication that its turnaround plans for these markets are on track and are likely to show operational improvements towards the back end of the financial year. The company has invested so that it now offers 4G/LTE in every one of its markets and it is on track to deliver on its 2018 outlook.
More recently on July 3rd, the company announced that it has entered into an agreement with CK Hutchison Holdings Ltd. (“CK Hutchison”) for the sale of its 50% stake in Wind Tre. It has also submitted an offer to acquire the assets of Global Telecom Holding S.A.E (“GTH”) in Pakistan and Bangladesh. The sale of VEON’s equity stake in Wind Tre will bring in proceeds of EUR 2,450 million. A fraction of these proceeds will be used by VEON to acquire the GTH assets. The remainder will be used to reduce debt which, following the completion of both transactions, will result in net pro-forma leverage ratio (1) of approximately 1.8x, significantly below its target ratio of 2.0x. As per management, these transactions represent two critical steps towards their ambition to simplify the Group’s structure and enhance shareholder value.
Analysts tracking the stock believes that Under the present management team, VEON has become a strong participant of digital transformation in the telecom industry. With nearly 0.25 billion customers, VEON operates in some of the world’s highest growth telecom markets and — with great untapped demand for digital services. Also, the company is steadily progressing towards building a simpler, smoother and more operationally effective business that is really focused on delivering sustainable value for customers and investors.
From a market share perspective, the company business profile is supported by expedited consolidations in the industry, with smaller players exiting the market and others combining businesses. Leveraging the opportunity, VEON has grown its market share and footprint through organic business operations. The market believes that the company is at a critical inflection point right now and 2018/2019 is expected to be an incredible year for the company.
7 Wall Street analysts have issued ratings and price targets for VEON in the last 12 months. Their average twelve-month price target is $5.1667, suggesting that the stock has a possible upside of above 60%. The high price target for VEON is $7.00, and the low-price target for VEON is $4.00. There are currently three hold ratings, and 4 buy ratings for the stock, resulting in a consensus rating of “Buy.
Below are the details of some of the recent rating action on the scrip:
Latest Quarter Financial position:
- Revenue: Group reported revenue for Q1 2018 decreased by 1.4% year on year to USD 2.3 billion, primarily due to currency devaluation in Uzbekistan and Pakistan. Group revenue increased by 3.2% organically, driven by revenue growth in Russia, Pakistan, Ukraine and Uzbekistan, which was partially offset by continued pressure on revenue in Algeria and Bangladesh. The revenue trend was supported by good organic growth in mobile data revenue, increasing 23.0% for the quarter. Reported mobile data revenue increased by 15.9%. Mobile customers increased 1.8% to 210 million at the end of Q1 2018, primarily driven by growth in Pakistan, Bangladesh, and Ukraine.
- Profitability: Profit before tax of USD 37 million, compared to a profit of USD 130 million in Q1 2017, was driven by a decrease in foreign exchange gain and an increase in the loss in the joint venture and associates to USD 130 million. In Q1 2018, the company recorded a net loss for the period attributable to VEON´s shareholders of USD 109 million
Guidance: FY 2018 targets confirmed
Key risk factors and potential stock drivers:
- The industry remains susceptible to regulatory and technological changes. New technology could necessitate fresh investments or overhaul of existing networks.
- The company’ liquidity profile may weaken over the medium term if leverage increases or operating performance slips; the latter mainly because the industry is going through pricing pressure..
- The company’s ability to execute its plans in a timely manner and sustain operating performance will remain critical monitorables over the medium term.
- Telecom is a highly regulated market. Each market has its own regulatory environment and distinct consumer behavior patterns. Ability to mitigate these risks would continue to remain a key stock sensitivity factor.
- Also, larger-than-expected capex due to technological changes affecting financial risk profile could adversely impact the stock performance.
- On Friday, July 7th, 2018, VEON closed at $3.09, on an above average volume of 5.4M shares exchanging hands. Market capitalization is $5.405 billion. The current RSI is 80.91.
- In the past 52 weeks, shares of VEON have traded as low as $2.20 and as high as $4.47
- At $3.09, shares of VEON are trading above its 50-day moving average (MA) at $2.52 and below its 200-day moving average (MA) at $3.19
- The present support and resistance levels for the stock are at $2.90 & $3.22 respectively.
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