Ukrtelecom plans to spin off its mobile division

Ukrtelecom (UX: UTLM UK), Ukraine’s incumbent telecom operator, held its first AGM yesterday since privatization. Shareholders granted the board the right to sell Utel, Ukrtelecom’s mobile division, within a half year. Also at the AGM, shareholders reshuffled the supervisory board, installing their representatives, and increased board responsibilities. Management plans to present their reorganization strategy in September of this year, CEO Georgiy Dzekon said at the AGM. The Ukrainian government sold its 92.8% stake in Ukrtelecom in February, with Austrian investment firm EPIC spending UAH 10,575 mln per stake (UAH 0.609 per share). Yegor Samusenko: We positively assess the company’s decision to spin off its mobile business as we see the Ukrainian mobile market as mature. Due to the lack of investments, the company has not been able to develop its mobile network within the low penetration period and now the only option, in our opinion, is to sell the network and UMTS license to an existing mobile telco. Though the effect for minorities will depend on the sale price, we note the company will likely be able to attract cash needed for CapEx to boost its leadership positions in broadband, via this sale. We also like that EPIC, as expected, did not replace the company’s CEO, who was rumored to be one of the unknown figures ultimately behind the privatization – a move we deem positive for the company given the CEO’s experience. We retain our positive view on Ukrtelecom (UAH 1.10 per share 2Y target, 84% upside) and recommend this story for investors willing to bear restructuring risk and take on the longer horizon required for company to show financial results after restructuring.