Daily analyst comments

The Board of Directors at TGC-5 approved decisions on the issue of additional shares in order to wrap up the company's reorganization by taking over TGC-5-Holding, an intermediary structure, Interfax news agency reported citing the utility concern's press release. TGC-5 is to issue 600,000 commons and 400,000 prefs with Rub 0.01 par value each, which will be floated by converting TGC-5-Holding stocks into those of TGC-5. It should be noted that this SPO is technical and is needed to avoid the appearance of fractional shares in the course of conversion.

It's noteworthy that after the placement of the entire SPO volume, TGC-5's charter capital will increase by a mere 0.000081%, producing no impact on the company's market cap. We are moderately upbeat about prospects of TGC-5, which is currently valued at $469/kW, i.e. below the average figure for WGCs. However, when assessing the value of TGC power generation facilities a premium should be applied to the valuation of WGCs both because of the conduct of similar operations (heat output) and by virtue of business concentration of WGCs and TGCs in a specific region, which increases the bargaining power of a TGC.

In line with our conservative forecasts, TGC-5 will be expanding at quite a rapid pace, with installed capacity expected to reach 2,900 MW as early as 2010 or up 16% on 2007 and annual electric power output will amount to 11.3 bln kWh (up 31% against 2007). However, insufficient industrial development of the region prevents the company's market cap from rising. We are moderately upbeat about the company's prospects and think that TGC-5 will be worth $0.00155 per common share at year-end 2007, which implies only 16% upside against the July 3 closing price.