VIP upgrade.

VIP (Vimpelcom) is one of my big holdings. Got upgraded by DEUTSCHE BANK today with a price target of 43.
Here is a full text of the upgrade:

Synopsis:
In a report on the mobile sector, MTS & Vimpelcom: Pricing in a $20 Russian
ARPU, published earlier today, we raised our target price for Vimpelcom by 43%
to $43. We argued that visibility has improved sufficiently for the market to
start appreciating Russia’s usage-fuelled ARPU growth potential, and
dramatically increased our long-term Russian ARPU forecast, from $13 to $20.
This led to a 36% increase in our 2007-16 EBITDA forecasts. Our new Vimpelcom
target price offers 41% potential upside and hence we reiterated our Buy rating
on the stock.
We use an APT-derived RWACC of 11.0% (a RROE of 11.4%, including an equity risk
premium of 4.3%, a corporate governance risk premium of 0.7% and a liquidity
risk premium of 0.1%). We have assigned our terminal growth rate of 4% based on
the belief that competitive pressures on the sector will prevent mobile telecoms
from growing in line with nominal GDP (5%) beyond our explicit forecast period
(2007-16).
The key downside risks stem from competition possibly being greater than
expected, thus jeopardising the ongoing Russian ARPU recovery. The main risk is
that the ARPU margin, which is currently increasing, may provoke stronger
competition for a redistribution of the telecoms companies’ market
shares. Company-specific risks for Vimpelcom include potential greater pressure
on margins from inflation in Russia, wage pressures and rising advertising
rates. In Kazakhstan, risks for Vimpelcom stem from the potential aggressive
entry of a third player leading to a deterioration of the currently benign
competitive environment (essentially a duopoly at this stage). Other
Vimpelcom-specific risks relate to the performance of its expansion plans for
recently acquired operators in CIS markets (Armenia and Georgia).

The interesting part is I have been talking about growing APRU on yahoo finance blog

siting the same number ($20) on October 9th. I guess the analysts are a little slow. Here is my full post on that subject
I am still holding on to VIP. While i think the number of subscribers in Russia is now tapped out, and we will not see an increase there are still catalysts for growth.
- Revenue per customer. It’s been growing consistently. GDP has been growing, so people have more money to spend. It went from $8/month to $12.something a month in the last year. I believe it will be 20-25/month within 2 years easily, giving 100% revenue upside from existing customers.
- Other former USSR countries. A lot of the have not reached the saturation point Russia has. They will grow subscribers as well as revenue per subscribers.
- Deals with Asia.. it’s hard to quantify Vietnam deal impact, but it will be real. If China licenses go through it will be a huge boost.

If i see the financials deteriorate i will sell the stock, however for now there is nothing that looks “tapped out”.