Jul
23
Russian Stock Market - July 23, 2008
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On Tuesday Russian stock market has showed a negative dynamics. Taking into account the market turnovers, in trades took part only small investors and among the main issues were external stock and commodity markets. However, the situation at these markets was not so sound – European stock grounds and oil prices were felling down. As a result, almost all Russian stocks have a negative dynamics. The growth can be seen in a small number of stocks, including the preferred shares of Transneft, which can increase in price, due to old news.
In the end of the trade session, RTS code decreased by -0.96% and formed 2123.66 points. A negative influence was provided by the shares of Sberbank (-3.03%), Norilsk Nickel (-3.52%) and NLMK (-4.08%). The support was provided by the preferred shares of Transneft (+2.27%), common shares of Rosneft (+1.3%) and Severstal (+1.77%).
The rate of turnover of RTS Classic market was not high and totaled 33.2 mn USD. The best results showed the securities of LUKOIL (6.5 mn USD), VTB (5.9 mn USD) and Sberbank (3.2 mn USD).
The current situation at Russian stock market is very unstable. There is a strong possibility of further decrease, because 2 main technical indices were broken trough. We think that decrease of oil prices caused such an unsound situation, but growth dynamics at USA stock market can slightly support Russian stocks.
Russian Stock Market events
Acron’s stock offering formed 120-150 USD per share.
Price bracket of Acron’s shares formed 12-15 USD per GDR and 120-150 USD per share, announced Interfax.
Other Stock news
MTS is under tax claims.
Russia’s Federal Tax Service is claiming 1.13 bn RUR in back taxes from MTS, where the claims to 2005-2006. “MTS disagreed tax claims and intends to entrench its position, according to Russian law and regulations. It will not have a negative effect on company’s finances”, – says MTS’ statement.
Jul
22
On July 9th, Transneft published its IAS 2007 report, with results topping market’s expectations, though not finding reflection in dynamics of company’s quotes.
S Transneft’s net income of 2007 under IAS rose +17.9% above prior year (54.861 bn RUR) and formed 64.674 bn RUR.
Company’s sales of 2007 increased +9.6% versus similar results of 2006 and formed 221.942 bn RUR. The sales of 4Q 2007 has formed 57.393 bn RUR, or +14.4% over the similar term of 2006, when sales formed 50.151 bn RUR. Whereas we have expected that company will earn 219.750 bn RUR by year’s finals.
Operating costs increased its share in sales from 56.7% of 2006 to 61.3% of 2007. Amortization costs were the fastest growing expenditures, adding +38% during 2007, the costs for purchased oil rose +71.2%, electric power hiked 23.5%. Administrative costs also increased fast and formed 38.7y%, transport costs climbed +26.5%.
EBITDA, EBIT and net income margins are still rather high for a company of its sector, and results of 2007 have only demonstrated increase of these values. EBITDA of the year formed 56.5%, or +5.2% p.p. above the 2006, net income expanded by +29.1% or +2 p.p. exceeding past year. The growth of effectiveness was mostly formed not out of operating values, but through sale of oil surplus, which formed 15.97 bn RUR in 2007 (7% of sales).
We have corrected our model of Transneft, adding several changes to it. In particular – we have confirmed the forecast of Russia’s macroeconomic values for several next years. Our model now features reviewed company’s capital investments upwards at average of 7%. Mostly due to launch of VSTO’s first stage being delayed at late 2009 and expanded costs of project up to 30.5-31 bn USD. The corrections have also influenced Transneft’s operating costs, as latest report of Transneft indicates operating costs growing at a faster rate, above gross income, which leads to decrease of operations effectiveness in mid and long-term.
Resulting model revaluation and reflection of results off last financial report, brought a new fair price for preferred shares of Transneft, which formed 2,275 USD or -11.82% below the forecasted price of 2,580 USD. The current growth potential exceeds 93%. Therefore we confirm “BUY” recommendation on stocks of Transneft.
Transneft: VSTO grows costly - July 21, 2008 (PDF)
Jul
22
Rostelecom: Waiting for diversification - July 21, 2008
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In the beginning of July, Rostelecom has published its IAS 2007 report. As we have mentioned before, company’s report was not surprising and according to main financial results appeared under our expectations. Company’s revenue increased by +11.4%, OIBDA margin rose by +0.7 p.p. and reached 16.5%. Among the operating results, we should point out a weak growth of international traffic (+4.7%, due to decreased tariffs, the company became more attractive for subscribers) and decrease of international output traffic (-5.8%). Apparently, the competition in this segment is too strong, that is why Rostelecom’s positions are still weak. It should be mentioned that new services have a sound influence on company’s revenue, especially Internet access services.
Konstantin Solodukhin, the head of Rostelecom announced the main trends of company’s development strategy, concerning business diversification. The strategy intends Rostelecom’s entry to new markets – regional broadband, corporate clients and foreign markets. However, the given strategy can be characterized as preliminary and it does not reflect any final figures.
We did not reflect company’s development at the new foreign markets, because Rostelecom has yet to define its development strategy fully. We forecast the decrease of long-distance communications tariffs by -9.4%, due to FTS’ decision concerning the tariffs and we also think that they will not change them during 2009-2010. We also took into account the compensation payment cancelation (costs will decrease by -140 mn USD), which will lead to growth efficiency. Moreover, we have reflected the influence of Golden Telecom’s sale. We did not reflect company’s development at the new foreign markets, because Rostelecom did not define its development strategy in full value yet.
Our new estimation of Rostelecom’s shares is: 4.48 USD per common share and 3.36 USD per preferred share (7.2% fall). The main reason of decrease is difference of our 2007 forecasts vs the current data. Taking into account the increase/decrease potential of Rostelecom’s securities, we keep our “SELL” recommendation on common shares and “BUY” recommendation on preferred shares intact.
Rostelecom: Waiting for diversification - July 21, 2008 (PDF)
Jul
22
The beginning of trades can be characterized as natural. Oil quotes showed little changes, the fund market also closed without any surprises. The given tendency appeared to be during the trades and as a result, Russian stock market changed under the influence of external factors. The beginning of trades started with some corrections, after the fall on Friday and during the afternoon the market showed a slight growth. The prices of Transneft’s preferred shares demonstrated the highest growth on Monday. We do not exclude that the given growth was caused by the information, concerning the results of annual shareholders’ meeting, which was held on July 16th. Among positive aspects was the rate of confirmed dividends, which will be distributed according to 2007 results.
RTS of the day increased by +0.41% and closed at 2144.18 points. A positive influence was provided by securities of: LUKOIL (+1.14%), Gazprom (+0.87%) and Transneft’s preferred shares (+10.92%). A negative effect was sprayed by stocks of Silvinit (‑5.47%), Uralkali (-2.78%) and Severstal (-4.13%).
The turnover of RTS classic market was not too high and formed 48.3 mn USD. The highest transaction volumes was provided by stocks of Sberbank (7.7 mn USD), LUKOIL (7.4 mn USD) and Norilsk Nickel (2.6 mn USD).
We think that the fund market could show a slight growth. There some favorable factors for Russian securities in the current situation, especially for oil prices, which increased by 2 USD. We do not exclude that RTS’ growth can form 1% during today trades.
Main Russian Stock events
Vimpelcom marching South-East Asia.
Vimpelcom purchased 90% stake of Altimo’s company - Sotelco, which has a license of cellular services within GSM-900 and GSM-1800 rate in Cambodia. The deal formed 28 mn USD. The company plans to launch the cellular network, approximately during 9 months. Capital investments in the project can form about 200 mn USD.
Gazprom’s 1Q 2008 US GAAP report.
Gazprom Neft in increased net income, according to 1Q 2008 US GAAP report, by 110.0%, to 1.411 bn USD, in comparison with 2007 results, says company’s report.
Other Rusian Stock news
LUKOIL decreased extraction rate.
TGC-1’s 2007 IAS report.
NMTP: weak 1H results.
FESCO’s offering in full volume.
Jul
21
While describing wholesale generating companies (WGCs) last time, WGC-2 and WGC-4 were the only companies, which did not establish their IAS 2007 reports. Now, after they issued their reports, we have made some corrections in our WGCs’ model.
According to the results of year 2007, WGC-2’s revenue increased by +41% and reached 1,322 mn USD, while company’s cost rose by +35% and totaled 1,300 mn USD. As a result, WGC-2’s EBITDA margin formed 4.7% in year 2007.
The 2007 results indicate that WGC-4’s revenue increased by +28%, to 1.230 mn USD, company’s costs expended by +25% and reached 1.175 mn USD. Excluding reversing of reserves under devaluation of basic assets, EBITDA margin of WGC-4 increased by +1.7 p.p. and formed 10%.
The main influence on companies’ operating results was exerted by several factors: growth of gas prices, regulated and free tariffs of electricity power, increased share of energy market liberalization and also buy/sell activities at the wholesale market in energy segment.
Taking into account new financial results, we have reviewed the target prices of WGC-2 and WGC-4 and increased them, because the IAS reports met the forecasts. As a result, estimated price of WGC-2’s share formed 0.2387 USD vs 0.2325 USD, prior year results. Price of WGC-4’s share formed 0.1977 USD against 0.1943 USD, the last year results. We confirm “BUY” recommendations on companies’ securities. It should be mentioned that in short-term prospect, the prices of companies’ shares could fall down due to sales values of other former subsidiaries of UES.
WGC-2, WGC-4: Sound IAS 2007 reports - July 21, 2008 (PDF)
Jul
21
Stock Market Report - July 21, 2008
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After a two day’s growth, Friday’s Russian market went down on deep. The fall began since the very start of the trading session and continued throughout the day, until session’s end. Amongst more or less serious negative to influence the market, we must point out yet another decrease of oil price. Brent oil quotes have dropped below 130 USD per bbl. Do note that the decrease hit almost all front of liquid stocks, with only a single exclusion. Out of all range of stocks, only the banking sector seemed rather decent.
RTS of the day lost -3.96% and closed at 2135.38 points. The utmost negative influence upon the indicator was sprayed by stocks of: LUKOIL (-6.25%), Gazprom (-5.83%) and Rosneft (-7.76%). Whilst quotes of VTB added (+0.54%), Hydro-WGC (+0.78%) and preferred shares of Transneft (+1.28%).
The summary turnover of RTS classic market has formed 63 mn USD. Whereas the top volumes have been achieved by stocks of Sberbank (20 mn USD), LUKOIL (15.8 mn USD) and Gazprom (7.2 mn USD).
Current situation over the Russian stock market is not very stable. Judging from the technical analysis – this week market has all the chances to continue the fall – as two most important levels have been breached – the lower border of long-term canal and 200-days sliding average. Thus – if market does not compensate the fall today, above the given marks, then falling trend is sure to continue. Otherwise, today’s reachable level is 2240 points of RTS.
Main Stock events
MMK’s dividends decreased according to 1H 2008 results.
During the meeting held on Friday, the management of Magnitogorsk Iron & Steel Works (MMK), made recommended the shareholders to confirm dividends payoffs on meeting, which will be held on August 29th. According to 1H 2008 results, the recommended payoffs formed 0.383 RUR per share, announced company’s representative to the journalists. Shareholders’ register will be closed on June 21st.
Other Stock news
Aeroflot: 1H 2008 results.
According to 1H 2008 results, Aeroflot Russian Airlines’ passengers transfer increased by +16.2%, to 4,385 th ppl, in comparison with previous year results, says press office of the company.
Jul
18
With this research we continue the analysis of territorial generating companies of Russia, reviewing financial models of TGC-1, TGC-2 and TGC-5, launching analysis of TGC-6 and TGC-8. We have estimated them, using the method of discounted cash flows, adding several corrections into our forecasts.
We have corrected our forecasts for late 2008, considering the fact that some serious global changes over the capital markets have occurred, influencing the discount rate.
Where we had the chance – we renewed financial and production results of the companies. We have published regulated tariffs for electric power and output of 2008, also putting the new approach to forecasting of regulated and free tariffs to use. Also, we have attempted to consider the capital expenses of companies, using the latest available data on investment programs, which were also changed since the publication of our previous report on given companies, adding known and expected additional offerings (aimed at investment raising) and corresponding changes in equity.
Thus, we recommend “BUY” on common stocks of TGC-1 – due to a high potential in long-term. Similar recommendation is also issued to stocks of TGC-5, as stock have lost a considerable deal of value, because many speculative investors of UES were too eager to sell the stocks, after the company was divided from the holding. We recommend “BUY” on common and preferred stock of TGC-2. At the same time we recommend “REDUCE” stocks of TGC-6 and “SELL” stocks of TGC-8 – due to their overrating by the market.
TGC: Good changes are still ahead - July 18, 2008 (PDF)
Jul
18
Throughout Thursday RTS dynamics was notably positive. A range of factors supported this movement. Aside from the fact of foreign markets closing at a considerable growth, more support has been provided by Moody’s increase of RF credit rating. The resulting powerhouse of the market was made up from banking sector. Sberbank and VTB have proved significant support of RTS. Oil companies stocks of the second half of day have remained shadowed, following the drop of oil price. However, soon after the oil industry managed to catch up with rest of the market. US realty statistics and initial jobless claims data have cemented the morning rise of market. Soon after RTS breached 2200 points mark.
Yesterday’s RTS added +2.20% and closed at 2223.48 points. Some of the highest contributions into growth of indicator were brought in by stocks of: Sberbank (+5.73%), Rosneft (+4.41%) and LUKOIL (+2.5%). The stocks of Acron (-1.22%) and Uralkaly (-1.42%) have dropped value during the day.
The turnover of classic market has formed 56 mn USD, with the top three seats achieved by securities of: Sberbank (14.6 mn USD), Gazprom (11.3 mn USD) and LUKOIL (9.6 mn USD).
The external background seems rather sound towards Russia’s market. DJ upped +1.85%, NASDAQ increased by +1.2%. Though the price of oil has been dropped below 130 USD, losing almost 5 USD in just one day. We think that today the market would open upwards. Considering the Friday effect, RTS index dynamics is likely to be moderate. No important statistics are expected today.
Main Russian Stock events
Rosneft restructures debt.
Rosneft finished preparing to cover the last tranche of bridge-credit worth 22 bn USD, attracted back in 2007 to finance the purchase of Russian extracting, refining, sales and service assets of YUKOS, states the press-release of company.
Other Russian Stock news
Gazprom Neft tries strengthening positions at external markets.
Alexander Dyukov, the chairman of Gazprom Neft’s board, confirmed the intension to purchase 49% stake of the company and to establish strategic relationships between the companies, during the meeting with Serik Burkitbayev, the president of “NC “KazMunayGas””, says joint press-release of the companies.
Transneft confirmed payoffs.
The primary shareholder of Transneft – Russian Federation in person of Rosimushestvo a holder to 100% voting stocks of company, has called in unanimous decision, confirming the allocation of 2007 income of 4.018 bn RUR, reports the company.
Jul
17
Wednesday’s dynamics of the stock market were variously-directed. Since the very morning external factors went at work, thanks to which market opened up soundly in the start. Prior to the publication of US statistics, however, the market moved down sharply, following panic of US depositors, who try to get their money off America’s seventh largest bank – IndyMac. Besides of that – the negative pressure upon the oil & gas sector was brought by the dropped oil price. Nevertheless, throughout the second half of day the situation has changed considerably. This was supported by factors such as publication of strong corporate report and growth of US indices futures. US also published its industrial output data, which exceeded expectations.
Towards the end of the trading session index compensated for the day’s fall and closed at +0.06% above closing level and totaled 2175.46 points. The stocks of Norilsk Nickel (+5.07%) felt themselves well, on par with Sberbank (+1.29%) and VTB (+1.16%). Then again, the opposite side of the barricades was manned by stocks of Uralkali (-1.42%), Tatneft (-2.11%) and preferred stocks of Surgutneftegas (-4.3%).
Classic market’s turnover of RTS has formed 38 mn USD yesterday. Some of the highest turnovers have been achieved by stocks of LUKOIL (10.8 mn USD), Norilsk Nickel (7.5 mn SUD) and Gazprom (5.3 mn USD).
Today’s Russian stock market could be supported by external positive factors. Yesterday DJ and Nasdaq rose +2.52% and +3.12% respectively. America’s indices owe their dynamics to oil price, which dropped almost -3% yesterday. Markets may open up at an upward gap. However, today we should see the publication of US realty market, which is expected to be quite negative. All of this is meant to determine the further dynamics of Russian market today.
Main Stock events
Rostelecom to diversify itself.
Rostelecom’s board of directors confirmed the main trends of development strategy over years 2008-2012, said Konstantin Solodukhin, the chief manager of the company, at the press-conference on Wednesday. The key trend of the strategy appears to be the possibility of Rostelecom to become the only operator of Svyazinvest, providing the services to federal corporate clients, enter to broadband market and conquer the foreign markets.
Other Russian Stock news
Mechel’s preferred shares target at 50.5-60.5 USD per share and GDR of company.
Mechel Group announced its price range for preferred shares, states the company. The target range on preferred shares and GDR of Mechel is set at 50.5-60.5 USD apiece.
Jul
16
Earlier this July STC published its financial results of 2007 under IAS. Company experienced a range of evident improvements; however, the previous fears are still haunting the company.
Amongst the pluses we point out the growth of annual sales up almost +20%. And traditionally – local telephony was not the primary driver of income growth, as it happens with other IRCs nowadays. The primary reason for income growth to expand was a high number of subscribers, lacking the technical ability to choose the tariff plan, which negated company’s chance to fully benefit off changes in the industry. Starting with this year the number of subscribers able to choose from different tariff plans has been expanded, which could provide additional influence upon the sales of STC.
The development of new services continues to prove positive support upon the income of STC – broadband subscribers base of the year rose over two times, to 167 th subscribers, leading to growth of income off new services up 1.7 times. This year company expects the doubling of number of subscribers.
Do remember that STC is one of the least successful out of other IRCs from debt load standpoint. During past year STC’s net debt in USD value increased +5.4% and formed 837 mn USD. However, due to growth of OIBDA and net income the ratios to indicate the debt load are improving, constantly and steadily. Note though, company may continue to expand the portfolio required to finance announced investment program. However, versus other IRCs, STC’s planned CapEx of next five years seem rather “humble” – 29 bn RUR. Nevertheless, even this value would be hard to get for STCs – as company is still obliged to pay up its old debts and for next two years STC will require about 500 mn USD in order to cover existing long-term debt.
Today we renew our financial model of STC, adding events of past half of year. With new data in mind we upgrade our fair price of STC +2.5% to 0.2526 USD on common stocks and 0.1895 USD on preferred (previous estimates 0.2465 USD and 0.1848 USD respectively). Since the year’s start stocks of STC have some +30% of value, which intends considerable growth potential. Therefore we confirm “BUY” recommendation on both share types of STC.
STC: The connected south - July 16, 2008 (PDF)