Citi Cuts VimpelCom Shares To Neutral

On Friday, Citi issued a company note on VimpelCom Ltd. (ADR) VIP after weak 4Q15 results and general uncertainty over financial performance. Analysts at Citi downgraded VimpelCom from Buy to Neutral,while increasing their price target from $4.30 to $4.50.

Dalibor Vavruska and Dilya Ibragimova, analysts at Citi, wrote, "Our high-risk rating is particularly relevant given the low free cash flows and dependence of the investment story on uncertain outcomes of highly unorthodox strategies in the absence of anextensive track record, clearly articulated digital strategy, and M&A visibility [...] The share price is now higher while some of the uncertainties still persist."

Justification For Downgrade

Analysts at Citi gave one key reason why they downgraded VimpelCom: pressure on free cash flows.

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Citi highlighted that VimpelCom is expected to generate 2016 free cash flow that is below expectations driven by an unexpected increase in Uzbekistan tax and the effect of refinancing in Russia. Both of these events have increased the company's FCF sensitivity and have the potential to decrease shareholder value. However, the company is expected to develop several initiatives including a digital expansion of the businesses that can boost long-term business value.

VimpelCom last traded at $3.76.