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Aton - Daily Dashboard - May 12, 2010.


Yesterday, Russian markets advanced on the back of the global market rebound. Last week's biggest underperformers became yesterday's best gainers. Sberbank added 6.1%, Mechel rose by as much as 14.5%, and NLMK jumped 11.4%. Raspadskaya lost 23% on MICEX following two explosions at one of the company's mines over the weekend. Tomorrow, Rosstat is due to publish weekly CPI data. Also, the Association of European Businesses is scheduled to release statistics for light vehicle and car sales for April between 1217 May.

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US markets retreated yesterday, led by commodity stocks, as oil and copper prices declined. At the same time, rising demand for gold as a safer asset pushed gold producers' stocks upward. Markets also suffered as initial optimism surrounding the almost $1trn loan package for Europe's most indebted countries started to fade. However, wholesale inventories for March showed the third consecutive month of growth, indicating improving economic conditions.


Chinese stocks this morning are extending yesterday's losses as rising inflation and property prices fuel concerns that the government may take additional steps to tighten monetary policy. Raw materials producers have underperformed in both China and Brazil on lower commodity prices. Meanwhile, the Indian stock market firmed as several major companies reported improved earnings coupled with strong statistics on factory output.

MRSK Center and Volga (MRKP) FY09 IFRS Results: In Line With Our Expectations and Above Consensus

MRSK Center and Volga yesterday (11 May) reported FY09 IFRS results which were 4% and 67% above our estimates on EBITDA and net income, respectively (in rouble terms, adjusted for nonrecurring items). The difference from our net income estimate is mainly explained by a lower depreciation charge and interest expense than we had anticipated. The results also beat the consensus estimate by 33% on EBITDA and by 63% on net income.

Bottom line

The results are generally in line with our estimates (we consider EBITDA to be the most important figure) and therefore we consider the news neutral for the stock's fundamental value. We reiterate our 12M fair value for MRSK Center and Volga shares of $0.0109 (49% upside potential from yesterday's closing RTS midmarket quotes) and our BUY rating for the stock. The outperformance vs the consensus estimates may prove something of a positive trigger for the share's price performance.

MRSK North West Posts Weak FY09 IFRS Results

MRSK North West released its FY09 IFRS results yesterday (11 May) which we consider weak overall. EBITDA adjusted for nonrecurring items was 17% below our expectations and 5% below consensus. The divergence from our estimate can predominantly be explained by higher growth in controllable operating costs than we had anticipated.

Bottom line

We view the results as indicative of a lack of management control over operating costs. We note, however, that the currently employed acost plus' regulatory method does not provide the company with any incentives for cost cutting. Additionally we believe that the major driver for MRSK North West is transition to the RAB regulatory approach which is scheduled to be completed by 2011. Consequently we expect only a marginally negative market reaction to the news if any, despite the disappointing numbers.

Petersburg Supply Company Posts Strong 1Q10 RAS Figures

Petersburg Supply Company released strong RAS 1Q10 figures yesterday (11 May). The company's revenue in dollars grew by 47% YoY to $476mn in 1Q10, up from $324mn in 1Q09, on the back of an increase in electricity sales at liberalised market prices and growth in tariffs. The company posted EBIT of $33mn vs negative $8mn in 1Q09 and net income of $31mn against a net loss of $4mn in the same period a year ago.

Bottom line

We believe the results are positive for Petersburg Supply Company as they imply that the company managed to obtain advantageous retail tariffs, and hence infer a positive outlook for the 1H10 and FY10 figures. We note that recent reports in the Russian media have suggested that RusHydro plans to acquire Petersburg Supply Company from its current majority shareholder RAO Far East.

Meanwhile, other unconfirmed media stories have reported that RAO Far East is negotiating the acquisition of Fortum's 31% stake in Petersburg Supply Company. In our view, in the event of any deal with RusHydro or Fortum, the solid 1Q10 net income result should increase the likelihood of a favourable valuation of Petersburg Supply Company's stock. Alternatively, the strong earnings may lead to the payment of attractive interim dividends.

Mostootrjad 19 Wins $470mn Contract to Build Northern Section of Western HighSpeed Diameter

Real Estate Bulletin reported yesterday (11 May) that Mostootrjad 19 has won a $470mn contract to construct the northern part of the Western HighSpeed Diameter (WHSD) in St Petersburg. The company estimates that it will finish the project within two years.

Bottom line

We view the news as positive for Mostootrjad 19 since it underscores our view that the company is one of the region's leading bridge builders. The new contract should increase the company's order book by about 30% to $1.6bn over the next three years, on our estimates. We also remind readers that in March, Mostootrjad 19 secured a contract to build another section of the WHSD for $140mn.

Aton OOO (LLC)

27 Pokrovka str., bld.6, 105062



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Publication:Russian Banks and Brokers Reports
Date:May 12, 2010
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