OREANDA-NEWS. June 24, 2011. Renaissance Capital, the leading emerging markets investment bank, today launched expanded research coverage of Central and Eastern Europe (CEE), and initiated coverage of Turkish stocks. The announcement was marked by the release of comprehensive reports on the telecoms sectors in Turkey and CEE.

The expanded CEE coverage and initiation of Turkey coverage mirrors Renaissance Capital’s expansion in both regions over the past year.

“We have built arguably the most comprehensive emerging and frontier markets research team covering Russia, the CIS, CEE, Africa and Asia. The initiation of Turkish coverage signals our entry into the Middle East North Africa region,” said David Nangle, Head of Equity Research at Renaissance Capital. “Starting with our sector coverage in CEE and Turkey, we plan to roll out additional products in these regions that leverage the unique, emerging markets-focused expertise of our team.”

CEE

CEE telecoms account for a significant share of trading volume on local stock exchanges, Renaissance Capital’s CEE telecoms report finds. Telekomunikacja Polska S.A., Telefonica CR and Magyar Telekom represent 7%, 19.5% and 9% of their countries MSCI indices, respectively.

The report also finds that the major attraction of the stocks is dividend yields. TP S.A., Telefonica CR and Magyar Telekom have, on average, dividend yields of 9%, with potential for even higher yields. For instance, in the case of TP S.A. Renaissance analysts consider a 5% additional yield possible on the back of the Emitel sale, and a 4% yield increase in Magyar’s case if taxation is eased.

 Fundamentally, the trend seen in CEE is the migration of fixed-line traffic into mobile and VoIP – harming revenues, analysts say. Although CEE incumbent players still derive a chunk of their revenues from bread-and-butter fixed-voice business, the report concludes that all fixed-line traffic will eventually be commoditised and migrate into IP networks. The mobile voice market is saturated, and the major growth is coming from wireless data. Overall, despite the challenging top-line dynamics, CEE telecoms companies continue to generate hefty cash flows, Renaissance says.

Turkey

 In Turkey, TurkTelekom and Turkcell account for 13% of MSCI Turkey.

Renaissance Capital’s Turkey telecoms report finds that the country’s mobile market is highly competitive, with low margins, causing a decline in voice revenues over the past two years. Data traffic, while growing, is still small, due to low smartphone penetration.

TurkTelekom has better growth prospects than Turkcell, through broadband expansion, according to Renaissance; noting that the latter offers good growth opportunities despite relatively high penetration of around 40% currently, with incumbents holding a 94% market share.