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Why Vimplecom (VIP) Is Falling Today

NEW YORK (TheStreet) -- Vimplecom (VIP - Get Report) fell 12.6% to $10.17 Tuesday after the Russian telecom announced it will cut its annual dividend to bring down its debt ratio.

In a statement Vimplecom announced it will cut its annual dividend for 2014 to 3.5 cents a share from its prior guidance of 80 cents a share. The decrease will help offset the $20 billion in debt the company now has due to its expansions into Africa, Asia and continental Europe.

CEO Jo Lunder defended the telecom in a statement saying "Vimpelcom continues to have an attractive combination of mature, strong cash-generating businesses and solid emerging market growth opportunities."

For 2013 Vimplecom announced an interim dividend of 45 cents a share. The company said it would not pay a final dividend for 2013.

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The Russian telecom will continue its new dividend policy until it has a net debt to EBITDA ratio of under 2 times. The company hopes to have a debt to EBITDA ratio of 2 .3 times by the end of 2014.

TheStreet Ratings team rates VIMPELCOM LTD as a "hold" with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate VIMPELCOM LTD (VIP) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its notable return on equity, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Wireless Telecommunication Services industry and the overall market, VIMPELCOM LTD's return on equity exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for VIMPELCOM LTD is currently very high, coming in at 73.93%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, VIP's net profit margin of 4.48% significantly trails the industry average.
  • Currently the debt-to-equity ratio of 1.90 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with the unfavorable debt-to-equity ratio, VIP maintains a poor quick ratio of 0.85, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has decreased to $1,675.00 million or 16.16% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: VIP Ratings Report

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