Rostelecom: revenue up 11.7%, but profit rests on a thin 2.8% margin

On 12 November Rostelecom reported results for the third quarter of 2026. Revenue rose 11.7% year on year to RUB 233.1 bn, EBITDA by 8.5% to RUB 87.2 bn, and net profit by 17.0% to RUB 6.6 bn. The revenue growth rate was roughly the same as in the second quarter (+11.4%), while the EBITDA margin slipped from 38.5% to 37.4%. Our conclusion: the share is fairly valued – the portal model implies +6% upside, and EV/EBITDA of 2.8 is in line with its own three-year average of 2.9. Our view: the share is fairly valued; upside on the portal model +6%.

Our view: is there upside

Our view in numbers

Key takeaways

— Revenue added 11.7% year on year, and the pace was roughly the same as in the second quarter

— The EBITDA margin fell to 37.4% from 38.5%, with cost growth outpacing revenue growth

— Net profit rose 17.0%, but its margin remains thin at 2.8%

— Free cash flow for the quarter was RUB 5.0 bn after capital expenditure of RUB 39.1 bn

— Net debt rose to RUB 811.6 bn, with net debt/EBITDA LTM at 2.74

— The dividend yield of 5.8% is below the 7.0% we consider fair, while the forward estimate implies 7.4%

— EV/EBITDA of 2.8 is in line with its own three-year average of 2.9, and the portal model implies +6% upside

Key figures, RUB bn

Revenue added 11.7% year on year, and the pace was roughly the same as in the second quarter

Revenue for the third quarter of 2026 was RUB 233.1 bn, up 11.7% year on year. In the second quarter growth was 11.4%, so the pace was roughly unchanged. The company has maintained double-digit growth for three consecutive quarters.

The acceleration relative to the first quarter, when revenue grew 9.9%, reflects a recovery in business activity. In the fourth quarter of 2025 growth was 15.6%, but that is explained by seasonality – the final quarter is traditionally the strongest.

For an investor, what matters more than growth itself is that it is not accelerating. A stable 11–12% is a good figure for the telecom sector, but it does not create a new impulse for a re-rating of the shares.

The EBITDA margin fell to 37.4% from 38.5%, with cost growth outpacing revenue growth

EBITDA for the third quarter was RUB 87.2 bn, up 8.5% year on year. That is slower than revenue growth of 11.7%, so the EBITDA margin fell to 37.4% from 38.5% a year earlier.

The 1.1 percentage point decline in the margin means operating costs are growing faster than revenue. The company does not disclose in the report which cost line produced this effect, but if the current dynamics persist, pressure on the margin will continue.

Operating profit rose to RUB 39.5 bn, but its growth is held back by depreciation, which increases along with capital expenditure. For a telecom this is normal, but it limits operating leverage.

Net profit rose 17.0%, but its margin remains thin at 2.8%

Net profit for the third quarter was RUB 6.6 bn, up 17.0% year on year. Profit growth outpaces revenue growth, but its absolute level is small: the net margin is 2.8% versus 2.7% a year earlier.

Such a thin margin is explained by high debt and depreciation. Interest expenses consume a significant part of operating profit, which was RUB 39.5 bn, while net profit was only RUB 6.6 bn.

For an investor this means that even a slight deterioration in the operating picture or a rise in debt servicing costs could bring profit close to zero. The margin of safety on profit is small.

Free cash flow for the quarter was RUB 5.0 bn after capital expenditure of RUB 39.1 bn

Operating cash flow for the third quarter was RUB 44.1 bn, double the year-earlier figure (RUB 21.3 bn). However, capital expenditure rose to RUB 39.1 bn, leaving only RUB 5.0 bn of free cash flow.

The rise in capital expenditure reflects investment in infrastructure. For a telecom this is normal, but at such volumes free cash flow remains small and does not fully cover dividend payments.

Over the last 12 months operating cash flow was RUB 184.5 bn, while capital expenditure was about RUB 150 bn. Free cash flow over this period is positive, but its size limits the scope for dividend increases.

Net debt rose to RUB 811.6 bn, with net debt/EBITDA LTM at 2.74

Net debt as of 30 September 2026 was RUB 811.6 bn, up from RUB 801.1 bn on 30 June 2026 (+RUB 10.6 bn). Over 12 months debt rose from RUB 787.6 bn on 30 September 2025 (+RUB 24.0 bn).

The ratio of net debt to EBITDA over the last 12 months is 2.74. This is a moderate level for a telecom company, but it limits flexibility if interest rates rise.

Debt servicing is expensive: with the key rate at 14.0%, interest expenses consume a significant part of operating profit. A rate cut would be an important positive for profit and dividends.

The dividend yield of 5.8% is below the 7.0% we consider fair, while the forward estimate implies 7.4%

Over the last 12 months the company paid RUB 2.71 per share, giving a current dividend yield of 5.8%. That is below the yield we consider fair for this stock – 7.0%.

Our estimate of the annual dividend is RUB 3.46 per share, implying a forward yield of 7.4% at the current price. The estimate is based on a payout ratio of 0.57 of profit and a profit base of RUB 19.9 bn.

Historical yields at the ex-date have ranged from 3.8% in 2025 to 7.7% in 2026. The current level of 5.8% is in the middle of that range but below the fair yield.

The dividend could be lower if profit falls short of expectations or the company increases capital expenditure. The board decides on the payout.

EV/EBITDA of 2.8 is in line with its own three-year average of 2.9, and the portal model implies +6% upside

EV/EBITDA over the last 12 months is 2.8, in line with its own three-year average of 2.9. The stock is valued at the level of its history, with neither a discount nor a premium.

P/E over the last 12 months is 7.9, reflecting the low net margin. On the portal model, the upside of the share to fair value is +6%.

Two yardsticks – a multiple in line with history and upside of +6% – point in the same direction: the scope for gains is small. A re-rating would require either profit growth or a rate cut.

Valuation on the latest reported figures

Dividend per share, ₽, and yield at the ex-date

Bottom line

The strong point of the report remains revenue: growth of 11.7% year on year at a stable pace. However, the EBITDA margin fell to 37.4%, and net profit at a 2.8% margin remains vulnerable to interest expenses. Free cash flow of RUB 5.0 bn for the quarter is constrained by capital expenditure of RUB 39.1 bn. The dividend yield of 5.8% is below the fair 7.0%, although the forward estimate implies 7.4%. Our conclusion: the share is fairly valued – the portal model implies +6% upside, and EV/EBITDA of 2.8 is in line with its own three-year average of 2.9. Our view: the share is fairly valued; upside on the portal model +6%.