Analyst Reports

This section contains analyst reports on OAO "IDGC of Urals" as well as on distributive grid sector.

Aton (August 30, 2010)

Longer-Term RAB Rates of Return Clarified

"...The FTS's latest orders propose rates of return for MRSKs, which are due to introduce RAB from 1 Jan 2011, as well as for the fourth and fifth years of RAB regulation for the MRSK regional branches that adopted RAB in 2009 or 2010. The numbers provided indicate that from 2012 to 2013 the base regulatory rate of return will decline from 12% to 11% for MRSKs. Based on our discussions with sector companies, these draft proposals are very likely to be formally approved.
We feel that a lack of investor confidence with respect to RAB parameters and the timetable for introducing RAB are the key reasons the MRSKs trade at hefty discounts to our target prices. Our view is, therefore, the greater the clarity provided by the regulator on RAB parameters, such
as in this latest announcement, the better the market sentiment. Thus, we believe that further public announcements from the regulator, assuming they do not come as a major disappointment, may become a trigger for the MRSKs' share price performances..."

Full analyst report can be viewed here (pdf, 191 kb)

Rye, Man and Gore Securities (August 23, 2010)

MRSKs: Value is Hostage to Regulators

"...We assume for valuation purposes that all MRSK assets will obtain RAB tariffs in 2011, but we highlight regulatory risks: companies, for which RAB will mean very rapid tariff increases, are most at risk of further postponement or artificial shrinkage of their regulatory asset base by government to reduce tariff jumps...
...We revised our forecast for final regulatory asset bases (RABs), which MRSKs are expected to obtain in 2011 based on conversations with company representatives. We lowered our RAB expectations for MOESK,
Caucasus MRSK, South MRSK and Ural MRSK based on what the companies told us...
...We also discussed other operational and financial issues with the company representatives and used our impressions to give "good", "medium" or "poor" ratings to the companies by a number of key criteria...
...Based on our DCF valuations, corrected RAB forecast, and updated operational and financial data for each company, we pick out eight stocks with maximum upside, namely Urals MRSK, TRK, South MRSK, MOESK, Lenenergo, Center & Volga MRSK and MRSK Holding as well..."

Full analyst report can be viewed here (pdf, 564 kb)

Aton (July 02, 2010)

Electricity Distribution: RAB Delayed, Buy on the Dips

"... We do not believe that the delay endangers the RAB concept, and we see no signs of the government losing its commitment to introducing RAB. Even under our rather conservative assumptions, our valuation implies 103% average upside potential for distribution stocks. We therefore anticipate that at some point during the next weeks/months, when disheartened investors exit the segment, a very lucrative opportunity may arise to enter the MRSKs' sound investment story. ..."

Full analyst report can be viewed here (pdf, 193 kb)

Goldman Sachs (July 01, 2010)

Russia: Utilities: Power - Distribution

"... We reduced our initial RAB (iRAB) expectations to account for the risk of lower iRAB values given the pressure on regulated tariff growth. The previously planned transition of a group of regions to RAB-based regulation from July 1, 2010 did not happen. We now expect all MRSKs totransit to RAB-based regulation from January 1, 2011, which is the legal deadline for transition to the long-term tariff regulation for the power grids.We individually cross-check iRAB parameters and implied RAB-based regulated tariffs for each MRSK vs. constraints on 2011 tariff growth andcapex financing needs. Our bottom-up analysis results in a 16% decrease in iRAB for MRSK-Holding...

... We upgrade MRSK Urals to Buy. We favor MOESK, MRSK Urals and MRSK Center-Volga as they show above average returns, have limited risks to the iRAB and trade at attractive valuations on EV/RAB and EV/EBITDA..."

Full analyst report can be viewed here (pdf, 449 kb)

Aton (February 04, 2010)

Electricity Distribution: RAB Must Go On

"...Six standalone MRSKs with potential upsides over 50%. From the individual MRSKs, we avour those which already have a significant portion of their assets transferred to RAB – MRSK South, MRSK Urals, MRSK Center, and MRSK Center and Volga.

Triggers ahead. The MRSKs’ transition to RAB, and the announcement of RAB arameters are likely to continue throughout 2010. Once the RAB parameters areapproved by the regulator, uncertainty regarding the MRSKs’ future cash flows should iminish. This should significantly reduce distribution companies’ cost of capital..."

Full analyst report can be viewed here (pdf, 316 kb)

Unicredit

MRSKs: Powering through (May 26, 2009)

"...We initiate coverage on six companies in the distribution segment, in addition to the three already under coverage. Our top picks in the sector are MRSK Holding, Center MRSK, and Urals MRSK...We advise investors to use the currently depressed price levels to accumulate shares of those discos that are first in line for conversion to RAB..."

Full analyst report can be viewed here (pdf, 1.3 Mb).

Center Invest

MRSKs: Betting on Higher Capitalization (July 16, 2008)

"...The Russian authorities are in the final stages of laying the groundwork for the adoption of a Regulatory Asset Base (RAB) approach on all distribution and transmission systems. This watershed event should allow the industry to finance a comprehensive upgrade of the dilapidated system, achieve cost savings, enforce system stability and ensure a fair return to shareholders... Our outlook on the prospects for capitalization growth of Russia's distribution-grid complex is positive, and we recommend the stock of each MRSK as a BUY...."

For full analyst report, please, follow this link (pdf, 185 kb)

Merrill Lynch

Power Themes: Revaluating Grids (June 20, 2008)

"...The Russian authorities are in the final stages of laying the groundwork for the adoption of a Regulatory Asset Base (RAB) approach on all distribution and transmission systems. This watershed event should allow the industry to finance a comprehensive upgrade of the dilapidated system, achieve cost savings, enforce system stability and ensure a fair return to shareholders..."

Full analyst report can be viewed here (pdf, 1 Mb).

By placing these analyst reports on the web-site we are not responsible for any information, evaluations, forecasts or recommendations expressed by analysts in these reports.