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Aton - Daily Dashboard - May 26, 2010.


The Russian market slumped more than 5% yesterday as falling commodity prices sparked a retreat by oil and metals companies. NLMK closed 12% down, Gazprom Neft lost 9%, while Severstal fell 8.4%. Sberbank dropped more than 8% as the rouble depreciated to RUB1/$31.5. Today, Rosstat is due to publish Weekly CPI for 24 May.

(To view the full report please click here:


US stocks opened down yesterday, but then firmed over the course of the day on the view that markets were technically oversold. As a result, the S&P500 returned to positive territory, erasing the morning's loss of 3.1%. The declines in early trading came on the back of an increase in LIBOR for the 11th consecutive day and an escalation in tensions between North and South Korea.


Indian stocks are advancing this morning thanks to a rebound in commodity prices and several strong corporate earnings reports. Chinese stocks are also rising, led by metals and shipping companies, following an increase in freight rates and an announcement by Rio Tinto Group that it expects Chinese demand for commodities to grow. Developers are again underperforming after a local brokerage said that the government is unlikely to ease current monetary tightening measures.

Gazprom Neft Reports Neutral 1Q10 US GAAP Results

Gazprom Neft yesterday (25 May) reported 1Q10 US GAAP financial results. EBITDA beat the consensus estimate by 18.8%, while revenue and net income were below the market's estimates by 1.2% and 2.8%, respectively.

- 1Q10 revenue increased by 72% YoY to $7.3bn on the back of higher oil prices and consolidation of assets purchased in 2009

- EBITDA margin fell by 0.8 ppt mostly because of a 98.3% YoY increase in the cost of purchased oil and gas and export duty expenses rising 147.5%. At the same time we note that the company demonstrated good cost control: operating expenses were up only 22% YoY and SG&A expenses were 33% higher.

- 1Q10 net income increased 117% YoY to $727mn outpacing revenue growth due to a forex gain of $49mn (vs a forex loss of $166mn in 1Q09) During the associated conference call, management stated that the company is to sell a 5.37% stake in Sibir Energy to the Moscow government, but that Gazprom Neft aims to maintain its holdings in the latter company above 75%.

Bottom line

We consider the 1Q10 results neutral and do not believe they will affect the company's share price. Yesterday Gazprom Neft's shares fell 9% on MICEX but, in our view, this was the result of the share's poor liquidity on the back of the generally negative performance of the market (MICEX fell 5.7%).

TNKBP Loses Dispute with Federal Antitrust Service over Fines of RUB1.1bn

According to Kommersant (26 May), TNKBP has lost its Supreme Arbitrage Court dispute with the Federal Antitrust Service (FAS) over fines of RUB1.1bn. The court found TNKBP guilty of violating the antitrust law and setting excessively high prices for oil products. Similar cases for Rosneft, Gazprom Neft, and LUKOIL are currently under examination in different Russian courts. In 2008, the FAS attempted to fine the same group of oil companies at amounts of RUB1.5bn, RUB1.35bn, RUB1.44bn and RUB1.1bn, respectively. In 2009, again for similar violations, the FAS demanded much higher fines of RUB5.28bn, RUB4.67bn, RUB6.54bn and RUB4.2bn, respectively. These various court disputes remain unresolved.

Bottom line

The size of the fine is small and so we view the news as neutral for TNKBP. At the same time, this case may signal that other oil companies could also lose their cases and possibly pay higher fines.

InterRAO Mulls Another Huge Additional Share Issue

InterRAO's board of directors has recommended that shareholders approve another additional share issue at the company's AGM, scheduled for 25 June (the record date for the AGM was 20 May). The proposed additional placement amounts to 13.8trn new shares, or more than six times the company's current equity.

The company plans to place shares under a closed subscription with participants including the Russian government, FSK, RusHydro, Rosatom, and others, which intend to contribute a number of stakes in utility and utilitiesrelated companies. The exact share blocks to be contributed by the entities listed above have yet to be agreed on.

However, InterRAO's management noted at an analysts' briefing yesterday that stakes to be offered will include, among others, the state's shareholding in Irkutskenergo, as well as its stakes in electricity supply companies, which RusHydro is currently purchasing from RAO Far East Energy Systems. Management also stated that it believes that InterRAO's free float will not be reduced in terms of its percentage of equity. The placement price will be determined later by the company's board.

Bottom line

If the issue is placed at the current market price, it may amount to some $21.6bn. We believe that such a huge placement creates value dilution risks for current shareholders. We also consider management's comments on the free float as indicative that the placement price is likely to be significantly below the market as the company will need to make an additional share issue sufficiently attractive for private investors to execute preemptive rights. Negative for InterRAO, in our view.

Dixy FY09 IFRS Results

Dixy reported its FY09 IFRS results yesterday (25 May). The numbers were below our expectations, although the difference was not material. Revenue was down 12% YoY to $1,709mn while gross margin added 0.9 ppt to reach 26.8% (vs our forecast of 26.6%). SG&A costs were 3% above our estimates which put pressure on the company's operating profit which saw a 6% YoY decrease in 2009. Net income adjusted for noncash FX losses was 75% (or $6mn) below our estimates though the most disappointing news was the debt/EBITDA ratio which increased 16% vs 2008. This may hamper Dixy's selling space growth in 2010.

Bottom line

Dixy's P&L data is unlikely to move the stock, which is already down 35% over the past month. Dixy is now traded at 5.9x 2010E EV/EBITDA on our numbers which implies a 35% discount to its EM peers' average multiple. We already view Dixy's current price as attractive though its valuations may become more attractive closer to the end of this week if the market continues to weaken.

Svyazinvest Subsidiaries to Pay 9M10 Dividends

Svyazinvest yesterday (25 May) recommended that its subsidiaries pay interim 9M10 dividends of 10% of RAS net income for preferred shares and 15% for commons. This would bring the total payout to approximately RUB8bn. Svyazinvest also suggested that the relative record dates be set only once the obligatory buyout procedures have been completed, which in our view, should be in August.

Bottom line

On our estimates, the dividend yield is likely to be 47% for the Regional Telecom Operators' (RTOs) preferred shares and about 23% for the respective commons. We highlight two possible reasons for the interim dividend payment: to provide finance for Svyazinvest's corporate overheads and to encourage minority shareholders to support Svyazinvest's reorganisation at the AGMs rather than taking advantage of the obligatory buyout opportunities. To put the dividend recommendation in perspective, Svyazinvest's subsidiaries could be obliged to spend up to $700mn on the buyout, while the interim dividends would result in a cash outflow of just $250mn.

VimpelCom Buys Out Remaining Shareholders at $19 per ADR

VimpelCom announced yesterday (25 May) that VimpelCom Ltd has launched steps to squeeze out the remaining VimpelCom minorities by offering to buy their shares at RUB11,800 per VimpelCom share, or $19.11 per VimpelCom (OVIP) ADR.

The alist date' has been set at 14 July 2010. Investors holding shares at this date will receive the abovementioned cash payment. The squeezeout procedure is likely to be finalised by early August.

Bottom line

The buyout price is close to the sixmonth average and implies 21% upside to the final quote for VimpelCom (OVIP) on the NYSE, at 13 May. We remind readers that VimpelCom's stock (OVIP) is currently delisted from the NYSE.

We note that the relatively high squeezeout price could be received by the market as an indicator of high corporate governance standards at VimpelCom Ltd. VimpelCom Ltd should spend about $500mn on buying out VimpelCom's 2% free float, and this sum should not cause any difficulties for VimpelCom Ltd, in our view.

Aton OOO (LLC)

27 Pokrovka str., bld.6, 105062



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Publication:Russian Banks and Brokers Reports
Date:May 26, 2010
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