Shah Capital Management Roadmap to $100 Share Price at Veon Ltd (VEON)

Market Cap: $1.4 billion | VEON Ltd., through its subsidiaries, provides mobile and fixed-line telecommunications services.

• On April 14, 2023, Shah Capital Management (5.01%) stated that it is both disappointed and surprised that the share price continues to languish below $19 per share. It stated that there has been little investor interest despite the sale of the Russian portion of the business being almost consummated, most trading restrictions being lifted, and solid operating results for numerous consecutive quarters.

Valuation Insight

Shah Capital sees pro-forma 2023 EBITDA of US$1.8 billion and enterprise value of ~US$3.2 billion today, assuming the sale of the Russian asset is completed on schedule. Monetization of the 36,000 tower portfolio could provide over US$1.8 billion cash over the next two years, assuming a value of US$50,000 per tower. Veon’s other assets include a Kazakhstan fiber business worth over $200 million, real estate in Pakistan, plus tremendous value monetization potential of VEON’s fintech, entertainment, and healthcare brands. In other words, asset-rich VEON with ~160 million subscribers is trading at a pro-forma 1.8X EV/EBITDA today compared to most of its peers like Vodacom, MTN, Bharti, Millicom, America Movil, etc., at an average 6X EV/EBITDA.

• Shah Capital is asking VEON directors to implement the following strategies immediately after the formal close of the Russian business:

• Announce a US$200 million 10b5-1 equity buyback, and pledge to utilize 50% of annual free cash flow for equity buyback thereafter until VEON trades at a comparable valuation multiple to its global peers.
• VEON should not keep more than US$200 million cash at the HQ level. Cash of $2.5 billion at HQ as of 12/31/22 should be put to more productive use in the following ways:
  • After the 2023 bond buyback, judiciously pay off its outstanding RCF.
  • Partially repurchase 2024 bonds. These combined steps would not only significantly reduce Veon’s current high-interest costs but also improve its ratings from rating agencies, reducing its future interest cost.
  • Reduce the BOD size to 7 or 8 members to bring effective decision-making and cut HQ/corporate costs by over 55% soon to reflect the sale of the Russia business.
  • Separate VEON’s rapidly growing fintech/entertainment business (JazzCash, Mobilink, Tamasha, and Toffee) and list it on the Dubai exchange by the end of 2023 to unlock its US$1+ billion in value.
  • List Kyivstar on the NASDAQ or Warsaw exchange to realize its true potential as a pure Ukraine play. A partial stake sale could also be consummated.
  • VEON must strive relentlessly to be included in all Emerging Market Indices and fintech/telecom ETFs to align more with its global peer group.
• VEON is truly an asset-rich company with tremendous potential to unlock significant value for its shareholders, and Shah Capital would be incredibly surprised if VEON does not trade at 6X EV/EBITDA or higher by the end of 2024 upon successful follow-through of this strategic roadmap.

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