Morgan Stanley Resumes VimpelCom At Overweight, Sees 'A Clearer Way To Dividends'

VimpelCom Ltd (ADR) VIP seems to have overcome the overhangs and has “a clearer path to dividends on improving FCF and de-leveraging,” Morgan Stanley’s Polina Ugryumova said in a report. She resumed coverage of the company with an Overweight rating and a price target of $5.70.

Analyst Ugryumova believes that repricing of VimpelCom’s EU business, which currently appears undervalued, and GTH rerating could lend about 35 percent upside to the company’s share price.

Dividend Resumption

Following a three-year pause in profit distribution, VimpelCom could commence dividends in 2017, Ugryumova mentioned. Easing currency pressure and robust growth momentum in non-Russian countries should boost VimpelCom's free cash flows by 100 percent over the next couple of years, while also aiding in deleveraging the company by 2018.

“With uncertainties over the Uzbekistan investigation gone and EC approval of the JV with Hutchison's 3 Italia business, VimpelCom now looks better placed to reconsider its dividend approach,” the analyst wrote. She added that the company could adopt a "meaningful dividend policy" in 2017 and offering a ~5 percent dividend yield, comparable to its EU peers.

Ugryumova expects VimpelCom’s EPS to double in the next 2 years, backed by Op FCF improvement and deleveraging.

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