Headquartered in Amsterdam, Netherlands, VEON Ltd. (VEON) is a telecommunications company that operates in emerging markets, such as Pakistan, Uzbekistan, Bangladesh, Russia, Ukraine, Kazakhstan, Kyrgyzstan, Algeria and Georgia. The company’s recent acquisitions, and product and service launches, have attracted investors, as evidenced by VEON’s 17.8% gains over the past five days.

The stock has gained 35.8% year-to-date to close yesterday’s trading session at $2.05.

Though the telecommunications sector is suffering from the adverse effects of the global semiconductor shortage, VEON has been expanding its operations through sizable  investments and acquisitions in its key markets. This should boost the company’s performance in the long run, given the wealth of growth opportunities in the emerging markets.

Here’s what could shape VEON’s performance in the near term:

Growing Market Presence

On June 16, VEON acquired a majority stake in Russian ad-tech platform OTM through its subsidiary Beeline. Given OTM’s immense market reach as one of the largest independent ad-tech operators in Russia, this investment should allow VEON to strengthen its position in Russia. VEON is expected to be a major beneficiary because the Russian digital advertising market is expected to grow by nearly $2 billion over the next five years.

In March, VEON acquired a 15% minority stake in Pakistan Mobile Communications Limited (PMCL) for $273 million. The acquisition gives VEON  complete ownership of PMCL’s wholly owned subsidiary and one of Pakistan’s largest telecom operators, Jazz Pakistan.

Furthermore,  VEON’s Bangladeshi subsidiary Bangalink acquired 4.4MHz spectrum and 5MHz spectrum through an auction in March. The company plans to invest $115 million to purchase the spectrum, which should strengthen its market presence as one of the largest digital service providers in Bangladesh.

VEON sold its entire 45.57% stake in its Algerian subsidiary, Omnium Telecom Algérie SpA to the Algerian National Investment Fund, Fonds National d’Investissement (FNI) on July 1. The company executed the  sale via a put option, which should allow it to receive the company’s fair market value as determined through a third-party valuation. The company plans to invest the proceeds from this transaction to streamline its operations, thereby facilitating improved focus in its core markets.

High Liquidity

VEON’s subsidiary, Jazz Pakistan, secured a PKR 50 billion ($320 million) syndicated 10-year credit facility from a banking consortium. This is in addition to $462 million 4G infrastructure investments made by the company over the past two years. This funding is expected to finance the company’s ongoing 4G roll out in Pakistan, strengthening its presence in the country. Jazz is the country’s leading digital services provider, with more than 69 million subscribers.

In  March, the company entered  a multi-year credit revolving facility (RCF) worth $1.25 billion with international banks across Asia, Europe and the United States. This RCF replaced the company’s previous revolving credit facility signed in 2017 with the goal of  providing higher liquidity and greater financial flexibility, along with a  lower interest rate.

Discounted Valuation

In terms of non-GAAP forward P/E, VEON is currently trading at 5.78x, which is 72.1% lower than the 20.75x industry average. The stock’s forward Price/Sales and Price/Cash Flow multiples of 0.44 and 1.42, respectively, compare with the 1.93 and 11.10 industry averages.

Moreover, VEON’s 3.53 forward EV/EBITDA ratio is 65.9% lower than the 10.36 industry average of 10.36.

Consensus Rating and Price Target Reflect Potential Upside

Both Wall Street analysts that rated VEON rated it Buy. Its $2.60, 12-month median price target  indicates a potential 26.8% upside. The price targets range from a low of $2.40 to a high of $2.80.

POWR Ratings Show Promise

VEON has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

VEON has a B grade for Value and Quality. The stock’s discounted valuation compared to its peers justify the Value grade. Also, VEON’s 76.03% trailing-12-month gross profit margin is 49.9% higher than the 50.71% industry average and is in sync with the Quality grade.

Of the 52 stocks in the B-rated Telecom – Foreign industry, VEON is ranked #19.

In addition to the grade’s mentioned above, you can view VEON ratings for Momentum, Growth, Sentiment, and Stability here.

Click here to view the top-rated stocks in the Telecom – Foreign industry.

Bottom Line

VEON’s business expansion activities should allow it to become one of the prominent players in the emerging markets in which it  operates. Developing countries are likely to witness a substantial rise in their internet user bases amid the ongoing digitization wave, boosting VEON’s revenues and earnings in the near term. Analysts expect VEON’s revenues and EPS to rise 37.5% and 3% year-over-year, respectively, in its fiscal year 2021. Thus, VEON should be a value addition to one’s portfolio now.

VEON shares fell $0.02 (-0.98%) in premarket trading Tuesday. Year-to-date, VEON has gained 34.44%, versus a 16.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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