Daily analyst comments

Interfax reported that Kalina Concern plans to roll out a federal network of beauty salons under the Dr. Scheller Beauty Center brand. The first salon is to be opened in Yekaterinburg at the end of August and 4 salons are to be launched by year-end 2007. In the future, the total number is to be raised to 100, not only in Russian cities but also in Europe. In addition, investments in the project are estimated at around $650 mln.

We are upbeat on Kalina’s plans to diversify its business and gain a foothold on the adjacent segment of the toiletries market. The value of the Russian beauty salons market is estimated in the range of $4.8-5 bln and annual growth is 15-17%. Taking into account dynamic growth of this market segment, strong margins of up to 20-30% and possibility of more aggressive promotion of Kalina’s products under the Dr. Scheller brand in the network’s beauty centers, we believe that implementation of the project could push up the company’s financials.

However, high scheduled investments could result in cash outflow and possible borrowings of such amounts will augment the company’s debt, which might not go down well with investors.

According to our estimates, the estimated fair price of Kalina Concern is $52.80 per share and our recommendation is Buy.