Analysts worsen their outlook for Kazakhtelecom, keeping hope that the stock will grow anyway

According to a survey by Freedom Broker, analysts have lowered the target share price for Kazakhtelecom by 8.2%, from $95.70 to $87.85. This estimation is based on the operator’s latest quarterly report, which experts have read as moderately negative. Despite this, analysts recommend investors hold the stock as its price can go up soon.

The survey indicates that despite a 5.8% year-on-year increase in revenue, the company’s profitability has declined due to rising prime costs. Additionally, increased capital costs have led to a negative cash flow.

A 3.3% quarter-on-quarter reduction in the company’s yield is understandable, as Kazakhtelecom typically shows the strongest results in the fourth quarter, according to analysts. Furthermore, the operator reported a 13% year-on-year decrease in net profit for its majority shareholders, although this rate doubled quarter-on-quarter due to high expenditure on staff in late December last year, resulting in a net profit of $55.3 million.

The survey’s authors also pointed out that the company’s results were lower than expected. They anticipate this negative trend to continue in the upcoming quarters, potentially causing a further decline in the target price.

«In our valuation model, we have increased the net debt rate as well as the market value of the uncontrolled stake due to the rising Kcell share price. We have also forecasted a greater increase in capital costs and the weighted average cost of capital against the backdrop of soaring public bond yields in the capital market,» the broker stated in the survey.

Freedom Broker believes that once the deal to sell Mobile Telecom Service (which operates under the Tele2 and Altel brands) to Power International Holding (PIH) from Qatar is closed, Kazakhtelecom’s shareholders may receive special dividend payouts. However, the deal, approved by the general meeting of shareholders and the board of directors, could lead to a revenue decline and a fall in the company’s share price.