Hold Russian Mobile TeleSystems

Mobile TeleSystems OJSC - ADS (MBT - Analyst Report) is Eastern Europe’s largest cellular operator. Recent acquisitions facilitated further subscriber growth and higher revenues. However, increasing competition, ongoing political uncertainty, regulatory challenges, growing operational expenses and market risk in Russia warrant a more cautious view on the stock. Therefore, we maintain our Hold recommendation.

Management’s outlook for 2008 is also encouraging, with a projected annual sales growth of 25% while margins are expected to remain healthy with a 50% target. The stock has also reacted favorably to the share repurchase initiative.

MBT’s shares are trading at a discount to the S&P 500 and to its nearest rival VimpleCom (VIP - Analyst Report), on most valuation metrics, even though its projected earnings growth over the next five years is well above average. We set a target price of $86.50 based on a 2008 multiple of 7x EV/EBITDA levels at more conservative growth levels.

Anindya Barman contributed to the report.

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