Printer Friendly

FINAM - Daily Market Watch - Jul 12, 2010.

Market Roundup

Last week was relatively favorable for the Russian stock markets. Friday's session was fairly calm and was not disrupted by profit taking, which was good news for investors: as a result, the RTS gained 0.2% and the MICEX added up 0.3%. Blue chips saw mixed results; Gazprom was up 1.4%, while Lukoil and Rosneft eased 0.3% and 0.7%, respectively. VTB gained 0.1%; Sberbank commons closed the session nearly flat, while Sberbank prefs dipped 0.1%. Metals and mining names saw an upside: NLMK climbed 0.4%, Severstal advanced 0.1% and NorNickel added on 0.6%. Utilities saw negative performances: OGK-3 slid 0.7%, OGK-5 spiked 0.3%, and RusHydro rose 0.5%. The US market was riding high on a relatively favorable news flow: S&P went up 0.7%. Base commodity manufacturers demonstrated excellent results showing a 2.1% upturn, at a time when healthcare plays underperformed the market, gaining just 0.2%.

(To view the full report please click here:

Asian benchmarks have been on a rise this morning, with the NIKKEI 225 rising by 0.1%. Commodity markets have been relatively stable today; oil prices have come down slightly, but are still trading at fairly comfortable level of USD 75-76 per bbl of WTI crude. Prices for base metals are heading north. Today's macroeconomic statistics more than likely won't bring many surprises. No major news is expected out of the US. Looking to Europe, the only major event is the publication of France's current account balance for May. We believe that the current news flow is favorable for domestic market players. This is additionally affirmed by the growth of the RTS index futures market. Positive news flow from the US and Asian markets coupled with acceptable commodity prices are to be conducive to robust performances of Russian metal and O&G names.

Breaking News

Oil settled above USD 76 heading into the weekend in the largest weekly gain since May. Crude oil for August delivery rose 65 cents, or 0.9%, to USD 76.09/bbl on the New York Mercantile Exchange. Oil advanced 5.5% last week, the most since the week ended May 28. Brent crude for August settlement rose 71 cents to USD 75.42, capping a 3-day winning streak. Oil again traded higher with equities as the US stock market was upbeat heading into the corporate earnings season that gets under way officially today. The S&P 500 index added 0.72% while the Dow Jones Industrial average rose 0.58%, helping the country's benchmarks more 5% over the week, which nearly mirrored gains in crude future.

Oil market fundamentals remain positive with demand for crude intensifying as refiners boost throughput to meet peak summer demand. However, the broader macroeconomic picture continues to have a strong influence on oil prices which have traded in a strong correlation to equity markets due to a slowdown in the global economic recovery. Markets were waiting for Chinese trade data, due out on Saturday, for further price direction. According to preliminary customs data released on July 10, China's net purchases climbed to 22.14 mn metric tons. As for US retail sales, these numbers probably fell in June for a second month and industrial production likely cooled on signs that the expansion will slow down in H2, economists said ahead of reports due out this week.Crude was marginally higher this morning on the Chinese data, with August NYMEX trading up 6 cents to USD 76.15. Moving forward, we see further upside potential for WTI and Brent depending on the earnings season, although the underlying question remains whether investors have enough conviction to gain long exposure to crude in view of the shaky economic recovery.

RusHydro reports preliminary operating results for 1H2010. In 1H2010, electricity output at RusHydro and its subsidiary and affiliated power plants totaled 37.55 bn kWh, down 18% y-o-y. The key factor behind the drop in electricity output was the decreased energy production at the Sayano- Shushenskaya hydro-power plant, which came as a result of the 17 August 2009 accident. At the moment, only two rebuilt generation units are running at the Sayano-Shushenskaya station, and two more units are to be launched this year. Discarding the Sayano-Shushenskaya HPP, total electricity output at RusHydro and its subsidiaries would rise by 1% yo- y.

Kuibyshev Azot launches soda ash production. The new product is part of the company's strategy to improve manufacturing efficiency and reduce the environmental footprint. More specifically, the company has mastered a technique for processing wastes of caprolactam production into a marketable product with lower pollutant discharge into water reservoirs. The company plans to manufacture up to 7,000 tons of soda ash per year.

Korshunovsky GOK runs at 85% capacity in June. In June 2010, Korshunovsky GOK was at 85% capacity, and the situation does not promise to change very much this month. The company reported that it could have exported a larger amount, but had faced a shortage of railway rolling stock. Relatively low capacity is bound to put pressure on company 2Q and 3Q2010 financial results; however, the set level of prices for iron ore concentrate could enable Korshunovsky GOK to report an EBITDA margin of over 50%.

Fitch upgrades long-term issuer default ratings for 5 Russian banks. Fitch Ratings has upgraded longterm issuer default ratings for 5 Russian banks: the ratings for Spoort, Primsotsbank and SKB-Bank have been raised from B- to B, the rating for BTA-Kazan has been upgraded from CCC to B-, and that for Chelindbank from B- to B+.

RusHydro shareholders buy back 42% of additional issue by preemptive right. 42% of RusHydro additional share issue worth RUB 9.18 bn has been bought out by company existing shareholders by preemptive right. In total, shareholders have acquired 7,982,104,363 RusHydro shares at RUB 1.15 per share. The total issue volume was RUB 19 bn (19 bn shares with a par value of RUB 1). After the share buyout under preemptive right, 11,017,895,637 company shares have been left for the public selloff. Bids are accepted until July 12. The company has the right to reject bids, in which case, RusHydro has right to buy back shares and thus increase the volume of its treasury stock. The company now holds 1.78% of share capital in treasury shares. If it buys back the entire remaining portion of its additional issue, the size of its treasury stock could increase to 5.6%. The issue placement was launched on 12 December 2009. Shareholders were entitled to use the preemptive right till July 2.

Sergei Matvienko resigns as Bank St. Petersburg VP. Sergei Matvienko, son of St. Petersburg governor, Valentina Matvienko, has decided that the work on the fast-growing and promising real estate market is much more appealing than the post of top-manager at Bank Saint Petersburg, the sole bank based in the city rated among Russia's top 30 banks. Matvienko has resigned as vice-president of Bank St. Petersburg, where he worked for 9 years, with a view to focus on his own business projects.


Svyazinvest in talks over acquisition of Severen Telecom

The acquisition of Severen Telecom should permit North-West Telecom to strengthen its positions in the regional broadband market. The price offered for the asset seems to be fairly adequate, while the deal itself is unlikely to impair NWT's balance.

North-West Telecom, a subsidiary of Svyazinvest, has filed a motion to the Federal Antimonopoly Service (FAS) for the acquisition of 100% Severen Telecom, a corporate fixed-line telecom company operating in Saint Petersburg and Leningrad Region. Severen Telecom renders broadband internet access services to nearly 2700 corporate customers, which accounts for an 8-10% share of the regional BIA market. The parties have already signed a memorandum of intent and Severen Telecom is currently undergoing due diligence. The transaction could be closed as soon as 3Q2010.

The deal price is to be defined based on an EV/EBITDA just slightly over 6. Severen expects FY2010 revenue at about RUB 470 mn and EBITDA at RUB 170 mn. Therefore, the asset could cost Svyazinvest some RUB 1-1.1 bn. The acquisition is fully in line with the holding's development strategy, which aims to reinforce Svyazinvest's positions in the mobile and BIA segments. The integration of Severen into the business structure of North-West Telecom, and later into Rostelecom, should permit the latter to build up its positions on the promising and highly competitive telecom market of the North-Western Federal District. We are currently unaware as to how NWT will pay for the Severen, but expect the transaction price to equal nearly 3% of the net cost of North-West Telecom's assets according to RAS.

The acquisition, therefore, is unlikely to affect the company's balance figures somewhat seriously. Moreover, we believe that potential benefits for North-West Telecoms surpass potential shortcomings related to a possible fall in liquidity. In light of this, we regard the news as moderately positive. The fair value of Rostelecom (RTS: RTKM) as of year-end 2011 is USD 5.30 per common share with a 50% upside and USD 3.30 per preferred share with a 47% upside.


NCSP privatization delayed till 2011

A delay in the seaport privatization deprives NSCP of one of its short-term upside drivers. However, the company still has an excellent fundamental upside, and any local downturn in its stock valuations makes it an even more appealing buy.

On July 9, the Ministry for Economic Development of the Russian Federation announced that the privatization of a 20% state share package in Novorossiysk Commercial Sea Port (NCSP) could be postponed to 2011, because of little time left for document preparation and shaky economic conditions. We assess the news as negative for NCSP.

The privatization of the state share package was due in 2010 and would have become one of the crucial upside drivers for NCSP stock. The pre-selloff campaign should have improved the company's information background and drawn investors' attention to this promising asset. However, despite the current negative news flow, NCSP shares still have a significant upside potential.

We estimate the 12-month target for Novorossiysk Commercial Sea Port (RTS: NMTP) at USD 0.24 per share with a 64% upside. NCSP currently trades at a 46% discount to developed-market peers and a 37% discount to emerging-market peers on the P/E ratio.



Caustic makes offer to BSZ minority shareholders

In our view, the buyout price offered is fairly high for an asset like Berezniki Soda Plant and minority holder rights should not be infringed upon in the wake of the offer.

Following the acquisition of a 97% stake in Berezniki Soda Plant (BSZ) in early June, Sterlitamak Caustic, of the BashKhim group, has presented a mandatory offer to BSZ minority shareholders to buy out common shares, as required by the law aOn Joint Stock Companies'. The buyout price is RUB 7,281 (USD 236) per common share.

The offer will be valid for 70 days starting the date of its presentation. Sberbank has issued a banking guarantee on the offer. Given that the market for BSZ shares is practically non-existent (the shares are traded only on the RTS-board; the spread on common shares is 56%), it makes no sense to compare the buyout price with the market price.

However, we believe that the buyout price offered is fairly high for an asset like Berezniki Soda Plant and the rights of BSZ minority holders have not been infringed upon in the wake of the offer.

Grigory Yudashkin

Deputy Head

Private Investments Department

Finam Investment Holding

Daev Plaza Business Center

Daev Lane 20, office 209

Moscow, 107045, Russia

Tel: +7 (495) 604-8168

Fax: +7 (495) 604-8107

COPYRIGHT 2010 AII Data Processing Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2010 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Russian Banks and Brokers Reports
Article Type:Company overview
Geographic Code:4EXRU
Date:Jul 12, 2010
Previous Article:Aton - Daily Dashboard - Jul 12, 2010.
Next Article:Veles Capital - Trader's daily - Jul 12, 2010.

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters