Ukrtelecom shows positive bottom line in 1Q12

Ukrtelecom (UTLM UK) increased its revenue 1% yoy to USD 205 mln in 1Q12. Key growth segments were local calls (+10% yoy, solely on a tariff increase) and Internet (+2% yoy). EBITDA amounted to USD 36 mln in 1Q12 (vs. USD 30.9 mln a year ago), and net income totalled USD 0.7 mln (vs. USD 25 mln in losses a year ago). Surprisingly, Ukrtelecom posted just USD 0.1 mln in revenue from its mobile segment in 1Q12 (vs. USD 9 mln a year ago).

Alexander Paraschiy: As we did not find any sign of divestment of Ukrtelecom’s mobile segment in the company’s financials, we believe the company hid mobile revenue in other P&L items. We attribute the improvement in Ukrtelecom’s financials solely to an increase in local tariffs (which occurred in 2Q11 and 3Q11) – their effect will fade already next quarter. However, we see four potential drivers for further bottom line improvements in coming quarters, though effect on financials is hard to predict: 1) extra revenues in 2Q12 related to Ukraine co-hosting the UEFA Euro-2012 Football Championship (Ukrtelecom is main technical partner of tournament broadcasting); 2) a further increase in local fixed line tariffs that Ukrtelecom reportedly requested from the regulator; 3) further downsizing of its workforce (workforce-related costs were down 6% yoy, but still equalled 44% of revenue in 1Q12); and 4) a possible one-off profit from divestment of its mobile unit. We therefore threat Ukrtelecom as a speculatively attractive story for mid-2012.