Analysis of MegaFon

Company: MegaFon

Business: A Russian telecom company. Besides from offering the classical things of voice, mobile, and fixed-line data transfer and roaming they are also active in offering mobile phones, laptops etc. with their own brand on the products.

Active: Main focus is Russia but they have also expanded into Tajikistan, Abkhazia and South Ossetia.

P/E: 10.4

The P/E of MeaFon is ok with 10.4 but the P/B is not at all in my liking at 3.9 which then also gives us a no go signal from Graham. The earnings to sales are good with 17% and the ROE is excellent with over 37%! The book to debt ratio is ok with 1.2. In the last five years 2008-2012 they have had an excellent yearly growth rate of +10.3% which gives us a motivated P/E of 25 to 29 which means MegaFon is today highly undervalued by the market. The pay a very nice dividend of 5.8% which represents over 60% of their earnings which is a lot but for a telecom company I find it ok.

Conclusion: Graham says no to this company and so do actually I even though I do like their ROE, the P/E, the E/S and dividend. I simply too strongly dislike the P/B in this case for me to be interested any further. Another interesting aspect is that for a telecom company looking also at Europe they are by comparison not that much worse valued so I will keep looking.

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