Digital Portfolio And Leasing Will Unlock Future Potential

Key Takeaways

• Expansion into digital services and mobile financial solutions is driving significant revenue growth, enhancing overall earnings and margins.
  
• Strategic moves like Uklon acquisition and Kyivstar's U.S. listing are set to strengthen visibility, financial profile, and operational flexibility.
  
• Political unrest, strategic exits, and cyberattack impacts create volatility in revenue, profit margins, and potential growth, highlighting operational and financial vulnerabilities.

Catalysts

A digital operator, provides connectivity and internet services to corporates and individuals in Pakistan, Ukraine, Kazakhstan, Uzbekistan, Bangladesh, and Kyrgyzstan.

• VEON's digital services are expected to drive significant revenue growth, with direct digital revenues growing by 63% in 2024 and projected to increase further as part of the company's strategy to expand its digital portfolio. This is anticipated to positively impact overall revenue and margins as digital services become a larger share of the business.
  
• The planned public listing of Kyivstar in the U.S. aims to enhance visibility and investor interest, offering a unique opportunity to participate in Ukraine's recovery and growth. This move is expected to improve the company's financial profile and potentially boost earnings.
  
• The company's asset-light strategy, which involves reducing asset ownership in favor of leasing, aims to unlock significant value and strengthen the balance sheet. This approach is expected to improve net margins and operational flexibility.
  
• The strategic acquisition of Uklon, a leading ride-hailing and delivery service in Ukraine, is anticipated to enhance revenue streams by meeting unmet demand in the markets VEON serves. The expansion of these services into new territories could also bolster company earnings.
  
• The strong performance of its mobile financial services, particularly JazzCash in Pakistan, which posted significant transaction volume growth, reflects a robust future revenue stream. As these services expand, they are likely to contribute substantially to earnings and revenue growth.

VEON Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VEON's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 13.9% in 3 years time.
• Analysts expect earnings to reach $673.7 million (and earnings per share of $8.28) by about April 2028, up from $487.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $854 million in earnings, and the most bearish expecting $554 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, up from 6.4x today. This future PE is lower than the current PE for the US Wireless Telecom industry at 15.0x.
• Analysts expect the number of shares outstanding to grow by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

VEON Future Earnings Per Share Growth

Risks

• The political unrest in Bangladesh and the challenging macroeconomic environment significantly impacted operations, resulting in unstable revenue and potential volatility in growth. This implies potential risks of depressed revenue and profits in similar regions.
  
• The exiting of Russia, while a strategic decision, has reshaped VEON's financial profile, affecting their net debt to EBITDA ratio, which could impact their ability to leverage future earnings growth.
  
• Cyberattack impacts in Ukraine highlight potential operational vulnerabilities that can seriously disrupt network and financial performance, affecting revenue stability and potentially increasing operational costs.
  
• The capital expenditure intensity exceeded expectations due to investments in Ukraine amidst ongoing conflict, impacting equity free cash flow, which may limit future profit margins if these conditions persist.
  
• The deconsolidation of the TNS+ business in Kazakhstan reduced reported growth figures, indicating that further similar divestments or business changes might negatively impact their earnings and growth projections.

Valuation

• The analysts have a consensus price target of $63.225 for VEON based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $673.7 million, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 7.1%.
• Given the current share price of $44.16, the analyst price target of $63.22 is 30.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.