Kyivstar is building its own IT ecosystem. The evening news that the largest telecom operator in Ukraine intends to buy Uklon (if the AMCU gives its approval) once again confirms this.
Kyivstar is building its own IT ecosystem. The evening news that the largest telecom operator in Ukraine intends to buy Uklon (if the AMCU gives its approval) once again confirms this.
Thus, in addition to the e-medicine provider Helsi and its own IT company Kyivstar Tech (more than 400 IT professionals), another powerful player in the field of transportation organization is added to the digital ecosystem.
Why is Kyivstar doing this?
The answer will be as simple as possible: because he can afford it. In the literal sense of the words.
The fact is that Kyivstar, as a subsidiary of the international holding company VEON, cannot freely dispose of its dividends during the war. In other words, they accumulate.
Therefore, the company is actively spending money domestically. This applies to the development of the 4G network, the transition to GPON, and the purchase of new licenses for radio frequencies.
In 2023, Kyivstar fully repaid all remaining external debt ahead of schedule, including a loan of UAH 1,400 million ($38 million) with Raiffeisen Bank and a loan of UAH 760 million with OTP Bank ($21 million).
With high operating profitability (almost 60% EBITDA margin), the company actively invested in business development during the war years. Thus, in 2022, capital investments amounted to almost UAH 6 billion, in 2023 — UAH 6.4 billion. Last year, we should hardly expect a smaller amount.
Thus, Kyivstar has become one of the largest domestic investors. It has paid off its debts — now it is only self-development.
The second reason for Kyivstar’s investments in IT is that it is useful for its IPO (stock exchange) launch, which has already been announced and will happen sooner or later.
Our recent analysis of the capitalization of European telecom operators on the stock exchange shows that companies that stopped their development at the «pipe» level for transmitting traffic have lost a lot in capitalization over the past decade.
For example, Spanish telecom group Telefonica SA, which operates in Spain, Germany, the UK and South America, with annual revenue of €40.6 billion in 2023, has a market capitalization of just €21.9 billion. The same goes for French telecom giant Orange: annual revenue of €44 billion, capitalization of just $27 billion. British giant Vodafone is not far behind: revenue of €37 billion, capitalization of $17.8 billion.
In other words, the capitalization of the three major European operators is their annual revenue divided by 2. This is the multiplier for such businesses.
On the other hand, more agile smaller European telecom operators, which have grown into IT and entertainment services, have high multipliers.
Let’s start with Koninklijke KPN NV. This is the Dutch telecom leader. Revenue for 2023 is 5.44 billion euros. Capitalization is 13.9 billion euros. This gives us a good multiplier of 2.5.
With good prices and good profitability, KPN has been able to invest in rebuilding its fixed telecom network and switching subscribers from copper to fiber. In addition, the company has built the best 5G coverage in the country.
Another similar European example is Elisa Oyj, the leading telecom operator in Finland. Revenue for 2023 is $2.2 billion. Capitalization on the Nasdaq Helsinki stock exchange is €7.1 billion. This gives us the highest multiple of 3.2.
The Finnish company has a strong IT component (it is not only the largest provider, but also one of the strongest IT companies in the country). Elisa Oyj is also a leader in the entertainment segment in Finland. It has its own video platform with its own content production.
By acquiring companies like Uklon, Kyivstar is trying to make the most of the accumulated net profit of past years. The company doesn’t just keep money in its accounts, it puts it to work, transforming it into the best Ukrainian assets.
This is a good strategy going forward. Getting a better valuation on the stock market in the future is equivalent to investing in IT services now.
