Daily analyst comments

Interfax reported that Mikhail Matvienko, CEO of Urals Heavy Machinery Plant (Uralmash, part of OMZ) has disclosed the name of the beneficiary of a 42.16% stake in the company during his talk with the Governor of the Sverdlovsk region Eduard Rossel. According to him, Gazprombank acted as the party which purchased a large stake in the company. Thus, taking into account a 15% stake owned by Gazfund, Gazprom’s business structures have gained control over the machine engineering corporation.

This outcome was in line with our expectations. We reiterate our Hold recommendation on OMZ common shares with a target price of $4.90.

For the record, in early October UES BoD approved the acquisition of a 22.43% stake in Power Machines from Interros business structures which, coupled with a 2.58% stake owned by Lenenergo, will enable UES to gain a blocking stake in the power engineering corporation. In addition, another 30.41% of shares owned by Interros will be jointly managed with UES. The power holding’s BoD is planning to address the option agreement for the acquisition of this stake at its November 25 meeting.

In view of the recent developments around Russia’s largest machine engineering corporations, we do not rule out that a single state machine engineering concern could be established on the basis of assets of Power Machines and United Heavy Machinery (OMZ) as well as service and repair centers spun off from UES which could overcome the abortive project by Power Machines and UHM and also ensure the company’s competitive edge on international markets.