As I've pointed out in the past, VimpelCom (NYSE: VIP), Russia's No. 2 mobile phone provider after Mobile Telesystems (NYSE: MBT), has been trading at a P/E ratio near 20 while growing at around 80% per year, a valuation that would be tough to imagine were this not a Russian firm. But given VimpelCom's clear corporate communications, that price has always seemed cheap to me, and it still looks that way.
True, today's second-quarter results show a company that's slowing its rapid growth. Revenues climbed only 61% over the comparable quarter last year. I use the only qualifier because the past two quarters saw top-line increases of 78% and 71% year over year.
Earnings per American depositary share of $1.40 were only 64% better than last year's Q2, again representing slimmer growth than the 70% and 74% of the past two quarters.
There were other key metrics worth watching. First the good news: Churn was down 1.1%. Total subscribers grew by 120%, and outside Moscow -- now VimpelCom's biggest market -- the number expanded by 237%. A large chunk of that total came through the absorption of a large, Far East network, but the firm still managed 225% subscriber growth in the outlying areas even without that acquisition. Cost of adding subscribers shrank dramatically, by 33%. Though it's unclear from the release, I suspect the apparent drop is juiced by the addition of subscribers through the above-mentioned acquisitions.
Speaking of which, the firm also announced a deal to purchase Kazakhstan's second largest cell-phone provider, giving it 600,000 subscribers and a foothold in a country with a booming business in natural resources.
Investors should be wary of a few other numbers. Chief among them is the average revenue per user (ARPU), which suffered a 25% drop and was blamed on the lower revenues brought in by regional operations -- as opposed to those in Moscow. Considering that the majority of the firm's growth happens in this area, investors need to resign themselves to the slimmer numbers.
Though there will undoubtedly be growing pains as VimpelCom and Mobile Telesystems duel and try to figure out who will be the former Soviets' Verizon (NYSE: VZ) and who will turn out to be AT&T Wireless (NYSE: AWE), BellSouth (NYSE: BLS), or SBC Communications (NYSE: SBC), the huge opportunities in lands lacking hardline infrastructure make both the Russian carriers compelling investment ideas.
VimpelCom may be somewhat hidden, but it's a bit too big to be a true gem. Get ideas for undiscovered small caps with Tom Gardner's
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At the time of publication, Seth Jayson had no position in any company mentioned. View his Fool profilehere.
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