Financial Analysis and Valuation of Megafon DCF as the Base Model
Coursework: Financial Analysis and Valuation of OJSC Megafon, Russia using DCF as the base model
Prepared by: Victor Amoasii Word count: 3697
CONTENTS
1. Megafon overview and analysis of agency costs
2. Risk Profile Analysis
3. Weighted Average Cost of Capital
4. Megafon valuation
5. Capital investments risk analysis
6. Capital structure and dividend policy
Megafon overview and analysis of agency costs
Megafon is one of the leading three Russian mobile operators. Its majority shareholder is Alisher Usmanov, who controls 50% plus 100 shares through aseries of holding companies including Garsdale, which also owns stakes in Scartel (Yota) and Euroset. TeliaSonera owns a blocking stake of just over 25%. Megafon was listed on the London and Moscow stock exchanges in December 2012, with a free float of just under 15%.
Agency theorists treat the firm as a nexus of contracts between owners, employees, creditors, and others. Agency theory advocates (a) efficiency as a means to improve firm performance, and (b) the use of governance mechanisms to manage agency costs as the primary means of improving efficiency (Eisenhardt 1989; Fama and Jensen 1983).
In general, agency costs and corporate governance risks are considered to be very high in Russia. The main potential corporate governance risks associated with Megafon are generated by the fact that it is majority controlled by one shareholder, Alisher Usmanov, through a number of holding companies, in which various other assets (both related and unrelated to the telecom industry) are also held. This raises the potential risk of related-party transactions that may, in theory, be more beneficial to the controlling shareholder than to minority shareholders in Megafon.
Mitigating this risk to a large degree is:
(1) the presence of TeliaSonera as a minority shareholder with a blocking stake of
Prepared by: Victor Amoasii Word count: 3697
CONTENTS
1. Megafon overview and analysis of agency costs
2. Risk Profile Analysis
3. Weighted Average Cost of Capital
4. Megafon valuation
5. Capital investments risk analysis
6. Capital structure and dividend policy
Megafon overview and analysis of agency costs
Megafon is one of the leading three Russian mobile operators. Its majority shareholder is Alisher Usmanov, who controls 50% plus 100 shares through aseries of holding companies including Garsdale, which also owns stakes in Scartel (Yota) and Euroset. TeliaSonera owns a blocking stake of just over 25%. Megafon was listed on the London and Moscow stock exchanges in December 2012, with a free float of just under 15%.
Agency theorists treat the firm as a nexus of contracts between owners, employees, creditors, and others. Agency theory advocates (a) efficiency as a means to improve firm performance, and (b) the use of governance mechanisms to manage agency costs as the primary means of improving efficiency (Eisenhardt 1989; Fama and Jensen 1983).
In general, agency costs and corporate governance risks are considered to be very high in Russia. The main potential corporate governance risks associated with Megafon are generated by the fact that it is majority controlled by one shareholder, Alisher Usmanov, through a number of holding companies, in which various other assets (both related and unrelated to the telecom industry) are also held. This raises the potential risk of related-party transactions that may, in theory, be more beneficial to the controlling shareholder than to minority shareholders in Megafon.
Mitigating this risk to a large degree is:
(1) the presence of TeliaSonera as a minority shareholder with a blocking stake of