Taking Stock: GM and Mobile Telesystems

By Malcolm Berko

Dear Mr. Berko:
Now that GM has paid back its TARP funds, would you recommend the stock when it comes public in the summer of 2011? Would you also be comfortable owning Mobile Telesystems?
C.L., Troy, Mich.

Dear C.L.:
Edward Whitacre, the yokel-voiced Car Czar at General Motors is a psuedologist, a mythologist and I wouldn’t trust this disingenuous dissembler to put fuel in my new Buick, which years ago was an acronym for Built Under the Influence of Captain Kangaroo.

General Motors has not repaid all of our money it usurped from the government. Whitacre’s boast that GM has repaid the taxpayer bailout in full because we are buying more Buicks, Chevys, etc., is — putting it mildly — a giant thumb-sucking lie. And sadly, the Treasury Department is actively participating in this lie.

General Motors took $6.7 billion from a special TARP fund escrow account to pay back that loan. And those puffed-chest TV advertisements heralding the partnership between GM and the Treasury indicate how far the Treasury will go to perpetuate the lie. There is no mention of the government’s $2.2 billion investment in GM preferred stock, plus its 61 percent investment in GM’s common equity.

It’s apparent that those who seek full financial disclosure are terribly outnumbered by those who are intent on obscuring full financial disclosure. Just more of Goldman Sachs, Bank of America, Merrill Lynch and JPMorgan over and over and over again.

And never in a hundred, never in a thousand and never in a million years would I purchase the new shares of GM if it comes public in the summer of 2011. I don’t trust “Whitey” Whitacre, who comfortably indulges in a leadership of lies, setting a precedent for other GM executives. If lying comes so easily to management, then purchasing shares of GM makes about as much sense as buying mortgage-backed securities from Goldman “Sucks.”

It’s also important to know, when GM comes public, that the government’s huge overhang of stock (just like Citigroup) will continue to depress the share price. What is it that many folks say about car salesmen? Well, Whitey doesn’t fall far from the tree.

Mobile Telesystems (MBT – $19.42) is a $10 billion revenue mobile cellular communications company that services Russia, Ukraine, Armenia, Uzbekistan, Belarus and Turkmenistan. MBT also designs, builds and installs voice and data networks, including Internet availability, plus numerous value-added services common to AT&T, Verizon and Sprint. It has a strategic partnership with Vodafone, and as of year-end 2009, MBT had 96.4 million subscribers.

This hugely profitable company may be Russia’s most transparent public corporation, and analysts who follow MBT are comfortable suggesting revenue growth of 26 percent in 2010, 11 percent in 2011 and 11 percent in 2012. MBT is wisely managed, and proof is its 10.3 percent net profit margins, free cash flow representing 10 percent of revenues, a 27 percent return on equity, more than $3 in cash per share and an attractive dividend yielding 4.9 percent.

The risk of ownership is mostly political (Putin may decide to give the company to his mistress or the KBG). Still, long-term growth prospects are attractive. For 2011, the Street believes MBT could realize $12.8 billion in revenues, with a similar percentage increase in per-share income, plus a potential dividend increase to $1.25.

I am comfortable owning the stock. And if your next vacation takes you to Moscow, Vsevolod Rozanov, MBT’s chairman, will be pleased to share a bottle of vodka with you in his plush office.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.