Turkcell Is Performing Well, While Turkey Wilts

Turkcell (TKC) is a great case in a point as to why you can never completely separate a company from the context of its home market. While Turkey’s leading cell phone service provider continues to perform very well from an operational perspective, the problems in Turkey (both economic and political) and the resulting pressures on Turkey’s stock market and currency have pulled these ADRs down for a greater than 30% drop over the past year. While the local shares have performed meaningfully better (down 5%), that’s really not much comfort to shareholders holding the ADRs.

Turkcell shares look significantly undervalued, and it doesn’t look like the economic issues in Turkey are really hurting the business yet, but there’s no way to say that the problems in Turkey won’t get worse before they get better. And it is likely a long road back for Turkey in terms of the currency and institutional interest in the stock market.

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Turkcell Is Performing Well, While Turkey Wilts

Turkcell's Digital Push Continues To Drive Better Growth

You wouldn't know it by the share price, but management's plans and efforts to drive growth, and more profitable growth, at Turkcell (TKC) are working well. Turkcell continues to leverage its network superiority to generate postpaid subscriber growth as well as increased data consumption, and the results are showing up in the revenue and margin performance. Turkey's overall economy remains a risk factor, as does the company's fractious ownership group, but the shares continue to look undervalued.

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Turkcell's Digital Push Continues To Drive Better Growth

A Marked Improvement At Turkcell Restores Some Confidence

Shareholders of Turkcell's (NYSE:TKC) ADRs might understandably feel as though they've been cursed. Even when the company is executing very well on its strategy and seeing an exceptional improvement in results, the adverse move in the Turkish lira chews up most of the benefit. Since my last piece on Turkcell around a year ago, revenue expectations for FY 2017 have risen around 13%, and the local shares are up better 20% … and the ADRs are up less than 10%. Strong dividend payments this year sweeten the pot a bit, but Turkcell remains the sort of stock where you feel like you have to cover your eyes and peek between your fingers whenever there's news.

While I'm admittedly being a little flippant about this situation, I do believe Turkcell's strong execution over the past year deserves respect. Likewise, I think the recent trend in performance lends a great deal more credibility to management's long-term strategic view of the company. There is still a lingering shareholder dispute to resolve and ample uncertainty about Turkcell's M&A plays (not to mention plenty of uncertainty about Turkey itself), but the shares look around 20% undervalued today, and that's enough to keep me interested.

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A Marked Improvement At Turkcell Restores Some Confidence

MTN Group Bouncing From Problem To Problem

Shares of pan-African mobile services provider MTN Group (OTCPK:MTNOY) are down less than 10% from the last time I wrote about the company. And yet, since that time, the company has reached a settlement with the government of Nigeria on a large fine, appointed a new CEO, and begun to make some significant changes to its long-term strategic plans. It's also worth noting that the iShares MSCI South Africa Index (NYSEARCA:EZA) is up more than 15% over the same time period, so MTN Group is definitely getting left behind.

The reasons are many and ought to trouble MTN Group's shareholders. Nigeria's economy remains a mess, the company's competitiveness in South Africa is still less than ideal, the company still has a significant leadership vacuum, and there are new allegations of serious financial malfeasance in Nigeria.

I've significantly cut back my expectations for MTN Group from a modeling perspective, as I believe the company will have to spend more on capex to drive growth, and I have also chosen to model MTN Nigeria separately (and with a significantly larger discount rate). After these changes, my fair value of around $10.50/ADR still leaves meaningful upside for a company leveraged to significant potential growth in subs and ARPU over the next decade and beyond, but "potential" is a dangerous word in investing and investors should approach MTN Group aware of the risks and challenges.

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MTN Group Bouncing From Problem To Problem

Turkcell Still Bedeviled By Uncertainty

Turkey's largest mobile services provider, Turkcell (NYSE:TKC), continues to find itself mired in uncertainties that have weighed heavily on the shares. From questions about market share and competitiveness with Vodafone (NASDAQ:VOD) and Turk Telekom's (OTC:TRKNY) AVEA, to management's capital allocation priorities, to the seemingly endless squabbles between the largest owners, this is a consummate case of "it's always something".

While Turkcell's shares do look undervalued, and it seems as though the ownership spat may be nearing an end, I'm not sure the discount to fair value is so large as to be worth the trouble. Turkcell has its work cut out moving its subscriber base on to more lucrative post-paid contracts and higher-end phones, and I'm more concerned about the value to be gained from the company's expansion plans.

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Turkcell Still Bedeviled By Uncertainty

Seeking Alpha: MTN Group Desperately Needs To Get Its Act Together

Emerging market stocks have had a bad year in general, with most of the diversified indexes showing double-digit losses. South Africa's MTN Group (OTCPK:MTNOY) has done substantially worse, falling more than 50% this year and doubling the poor performance of the iShares MSCI South Africa Index (NYSEARCA:EZA), as the company has faced competitive challenges in many African markets, ongoing executive turmoil, and a huge regulatory fine in Nigeria.

That the shares seem significantly undervalued and represent a diversified play on the growth of Africa is really the only reason to continue to put up with the drama and volatility. MTN Group does do some things right, and the company is seeing strong performance from mobile data and mobile money, but the company desperately needs to name a strong candidate as CEO and craft a plan that will see the company compete profitably in its markets.

I believe that mid single-digit long-term revenue growth and high single-digit FCF growth can support a fair value close to $14 for the ADRs. That represents a substantial erosion of value over past articles on this company, but the movement of the rand against the dollar (from around 10.50 to 15.20) has done a lot of the damage. Cooperatively resolving the fine in Nigeria, leveraging growth potential in Nigeria, Iran, and Ghana, and competing intelligently in South Africa would all help drive value apart from macroeconomic factors like currency rates.

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MTN Group Desperately Needs To Get Its Act Together

Seeking Alpha: Turkcell Looking Long Term, Market Thinking Short Term

As a reader commented on a prior Turkcell (NYSE:TKC) piece, Turkey's leading mobile operator sits at the intersection of two unpopular avenues today - mobile communications and Turkey. Investors have grown impatient with the growth prospects of mobile carriers as penetration rates grow, revenue and earnings growth slows, and the capex bills grow to keep with the evolution of technology. On the Turkey side, there are no shortage of problems and concerns ranging from so-so economic growth (4% GDP in the third quarter), a high-profile spat with Russia that cost a pilot his life, and ongoing military conflict involving Daesh in Syria and the PKK in Turkey.

Turkcell's ADRs have lost about 20% of their value since early May of this year, with further adverse moves in the Turkish lira magnifying a double-digit decline in the home TCELL.IS shares. For the little to no good it does to make investors feel a little better, Vodafone's (NASDAQ:VOD) ADRs have declined about 10% and Turk Telecom's (OTC:TRKNF) local shares have fallen more than 25% in Turkey.

I realize that fighting the tape is an invitation to short-term pain, but I think the market is too worried about the near term at Turkcell and not willing to consider the long-term opportunities. Turkcell continues to gather higher value post-paid subscribers and has been generating good growth from its mobile data, and the company's substantial investments in spectrum will have the company positioned for mobile data leadership for a decade. Turkcell's ADRs definitely need a more favorable outlook/sentiment for Turkey as a whole, but with a fair value close to $12, I think these shares are worth a look from patient investors today.

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Turkcell Looking Long Term, Market Thinking Short Term

Seeking Alpha: Turkcell Looking At Short-Term Pain For Long-Term Gain

Neither Turkcell (NYSE:TKC) nor its local rival Turk Telecom (OTC:TRKNY), who operates Avea, have been getting much love in the market and it gets even worse when you factor in the currency moves between the dollar and lira. That comes despite the fact that the Turkish mobile market is actually pretty healthy relative to other emerging markets (South Africa, Russia, the Middle East, North Africa, et al) and there are credible reasons to think that the market will get more rational.

Turkcell at long last managed to hold its annual meeting and pass a dividend, a move that investors were waiting literally years to see. Turkcell being Turkcell, there are still challenges and controversies - Cukurova is trying to gain control of the company via a "shotgun clause" (that the Turkish government could reject), the company is adjusting to a new CEO, the company may be looking to make an acquisition in Ukraine, and the company will be looking at spending billions on new 4G licenses and equipment. While there are definitely some risks that cash could be flying out of the company for the next few years, I think the long-term advantages of the 4G migration outweigh the short-term volatility.

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Turkcell Looking At Short-Term Pain For Long-Term Gain

Seeking Alpha: Amidst Macro Worries, MTN Group Can Still Outperform

While a long-term bull on pan-African mobile phone services provider MTN Group (OTCPK:MTNOY), I was cool on the stock's near-term performance potential back in September. Since then, the ADRs have dropped about 25% while the local shares have fallen about 20%. That move hasn't occurred in a vacuum, with investors worried about the macro outlook in Nigeria and South Africa and company-specific concerns about MTN's performance in those large markets.

I remain bullish and I think the shares are looking more appealing on a short-term basis as well. I believe the market has over-corrected for the risks in Nigeria and underestimates the steps taken to improve results in South Africa and the long-term potential of mobile money services. Adverse currency moves have pushed my target down by about $1, but I think MTN Group remains a well-run play on growth in Africa and to a lesser extent the Middle East.

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Amidst Macro Worries, MTN Group Can Still Outperform

Seeking Alpha: MTN Group Doing Pretty Well Despite Operating Challenges

Up more than 30% over the past year and more than 10% since my last update, I can't really complain about MTN Group (OTCPK:MTNOY). Although the company still has a lot of work to do in South Africa, and maybe more work to do than is commonly appreciated in Nigeria, the company's overall trends in subscribers and margins are looking pretty good. 3G and data remain significant growth drivers, as does mobile money, but MTN Group's valuation seems to largely reflect those opportunities. I'm reluctant to sell a well-run and broad-based play on Africa that could generate double-digit long-term FCF growth, but I can't claim that today's price is a tremendous bargain for new investors.

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MTN Group Doing Pretty Well Despite Operating Challenges

Seeking Alpha: Decent Earnings Not The Real Story At Turkcell

It looks like the long and ridiculous dispute between Turkcell's (NYSE:TKC) owners, a dispute that has held up a dividend for literally years, may finally be at an end. Not only that, while Turkcell is still seeing significant competitive pressures in its core Turkish voice market, the underlying earnings performance has been pretty decent.

There are still plenty of unknowns here - will Turkcell pay a dividend in 2014? Will Altimo exit its position (and if so, how?)? Will Turkcell's competitors get more rational and allow for market repair? Although there could be some upside in the resolution of these questions, the move in the shares has me thinking that it may be time to call it a day.

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Decent Earnings Not The Real Story At Turkcell

Seeking Alpha: Turkcell Executing On The Ground, But Litigation Still A Sizable Hurdle

The spat between three of Turkcell's (TKC) major shareholders was ridiculous one and a half years ago and it hasn't gotten any better since then. With a recent U.K. ruling reinstating TeliaSonera's (OTCPK:TLSNY) nearly $1 billion claim against Cukurova and the $1.6 billion payment from Cukurova to Alfa/Altimo still pending, it seems unlikely that tomorrow's annual meeting will go forward, meaning that the wait for clarity on dividends and the shareholder structure drags on.

If there's a bright side to the story it is that Turkcell is operating relatively well in its core Turkish mobile operations. Fierce competition with Vodafone (VOD) and Avea is still very much a threat, but EBITDA growth has been getting better and Turkcell should be a major beneficiary of more rational competition going forward. The dispute between Turkcell's major shareholders is definitely an ongoing risk factor, but Turkcell has been building up quite a cash pile and resolution of the dispute should lift a meaningful non-operating cloud from the shares before 2014 is over.

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Turkcell Executing On The Ground, But Litigation Still A Sizable Hurdle

Seeking Alpha: MTN Group One Of The Few Telcos With Real Growth Opportunities

I've lamented on more than one occasion that growth is getting harder and harder to find for many, if not most, global wireless service providers. Not only are most developed markets already saturated, but many so-called emerging markets have already emerged, leaving many service providers with few options other than to engage in withering price and marketing competition. That's not the case for Africa's MTN Group (OTCPK:MTNOY), as the company continues to see high single-digit sub growth overall across its 22 markets. Better still, data, mobile money, and higher end services (3G and so on) are only just starting to make real contributions to results. MTN Group doesn't offer a rock-bottom valuation, but the growth prospects are good enough to make this a name worth consideration.

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MTN Group One Of The Few Telcos With Real Growth Opportunities

Seeking Alpha: Orange SA Needs Market Repair To Fuel Another Leg

France's CAC 40 has done reasonably well this year, beating the S&P 500 and major European indexes like the FTSE, but Orange SA (ORAN) has blown the overall French market out of the water with the shares up almost 40% year to date. Shareholders have definitely embraced the company's ongoing cost reduction efforts and the company's major markets have largely settled down in terms of pricing.

Orange SA still has some opportunities to improve on its own, including 4G and fiber rollouts, but the shares valuation seems to factor a lot of that in right now. For the shares to keep up this momentum, I think the market needs to see more consolidation. With rumors out that Orange has approached Bouygues (OTCPK:BOUYY) and the French government previously indicating it was open to further consolidation, Orange may be able to push the French market toward much-needed market repair and unlock more value.

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Orange SA Needs Market Repair To Fuel Another Leg

Seeking Alpha: Millicom Needs To Improve Margins To Unlock Value

The glory days of wireless service growth appear to be over. Most markets have at least three competing companies, and even those few remaining virgin markets have been demanding expensive concessions from operators. In the case of Millicom (OTCPK:MIICF), then, the question is whether or not the company can use better margins as a driver of shareholder value. Though the company has the opportunity to grow its cable and multi-play services in Latin America and benefit from underpenetration in Africa, management will likely find it easier to deliver incremental growth through cost containment.

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Millicom Needs To Improve Margins To Unlock Value

Investopedia: Vodafone, Verizon (And AT&T?) Go Once More Unto The Breach

Good ideas have a way of hanging around and figuring out a way to unwind the split ownership of Verizon Wireless is a good idea. With that, Verizon (NYSE:VZ) and Vodafone (NYSE:VOD) are back at work on a way to forge a mutually beneficial arrangement to bring Verizon Wireless fully under the ownership and control of Verizon. If reports of Verizon being more flexible on price and Vodafone being more flexible on deal structure are true, there's a good chance this deal gets done, but I still wouldn't rule out the possibility of AT&T (NYSE:T) having a role to play before it's all said and done.

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Investopedia: MTN Group Has The Growth, But Ample Uncertainties

One of the predominant issues in telco service stocks right now is the weak growth environment – penetration rates in most developed markets are quite high, and competition makes it difficult to sustain any sort of real edge. That's not nearly as much of a problem for Africa's MTN Group (Nasdaq:MTNOY), given the low penetration rates and per-capita incomes in much of its territory, but the company has its own set of challenges ranging from regulatory, political, and economic uncertainties to the potential deployment of capital towards M&A.

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Investopedia: Turkcell Is Undervalued, But Also A Complete Mess

It's typically a given that undervalued stocks come with a “but”. In other words, there's usually a reason that a stock is trading below fair value and it's up to investors to decide if the prevailing sentiment is overlooking the longer-term opportunity. In the case of Turkcell (NYSE:TKC), that's a very difficult question to answer. On one hand, the company's improving post-paid subscriber base and generally more rational competition bode well for profits. On the other hand, Turkey is going through a very dangerous time and the the squabbling between Turkcell's major shareholders have prevented the company from paying a dividend for multiple years now.

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Investopedia: China Mobile Trades Growth For Stability

Investors may be frustrated with some of the decisions that China Mobile (NYSE:CHL) management has made in recent years, but at least they can say that the company is what it is – a leading wireless service provider focused exclusively on China and built around generating solid and predictable returns on capital and free cash flow. With that in mind, China Mobile looks like a solid investment pick, particularly for those investors looking for above-average dividend potential.

Will 4G Justify The Investment?
China Mobile has been ramping up its 4G network plans, and spending on this rollout is likely to be a key story over the next couple of years. Management has targeted having 200,000 base stations in 100 cities by the end of the year, with an official launch of service either late this year or early next. Assuming the company keeps to that schedule, it should provide an effective one- or two-year headstart.

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Investopedia: France Telecom Under Pressure From Both Sides

It certainly fits a lot of American stereotypes about France to see the incumbent telecom operator (and leading wireless provider) France Telecom (NYSE: FTE) struggling with operating efficiencies and high employee costs. What may not be stereotypical, but is nevertheless true, is that brutal free capitalist-style competition is likewise putting a lot of pressure on the company's revenue generation in its home territory. Although arguably too cheap by several metrics, France Telecom has a worrisome capital and expense structure and relatively uninspiring growth potential.

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