Daily analyst comments

On September 18, 2007, UES will hold a public auction to sell off the power holding’s 1,963,512,684,000 common shares in Energosbyt Rostovenergo, Interfax reported quoting the sales company’s Corporate Governance and PR Department. These shares account for 48.4% in Energosbyt Rostovenergo’s charter capital and are to be sold off as a single lot. The starting price is $37 mln (Rub 950 mln).

It’s noteworthy that recently many valuations of sales companies were reported. In June 2007, the valuation report of independent appraisers was released and information that UES plans to assign to Far East Holding (one of three holdings established as part of utility sector reform) stakes in 43 sales companies. Interfax reported that as part of these structural transformations, Energosbyt Rostovenergo was valued at Rub 943 mln ($36.73 mln). In early August, Vedomosti reported an anticipated starting price of the auctions to sell sales companies and the stake in the Rostov-based company was already valued at Rub 923 mln ($35.95 mln).

The actual starting price of the auction to sell off the power holding’s stake in Energosbyt Rostovenergo turned out to be higher than previously announced optimistic estimates. Based on the starting price, the estimated company value/book value of equity is 9.5, while the median value for the sales segment is 4.6 and the estimated company value/electricity output ratio is $8.8/MWh, while the median value for the segment is 5.9. We believe that the last information on the sales segment will drive up investor interest in their stocks.

Although this development is upbeat for the industry, we believe that Energosbyt Rostovenergo shares are highly priced by the market and in our opinion, the selling price could be 10-15% higher than the starting price. We assign a Sell recommendation to Energosbyt Rostovenergo shares. We view shares in Petersburg, Smolenskaya, Lipetskaya, Bryanskaya, Kaluzhskaya and Vladimirskaya sales companies as top picks in the segment.