Daily analyst comments

Italian energy major Enel has invested $6 bln in the Russian utilities industry and is looking to invest another $3 bln, Interfax reported citing the holding’s CEO Fulvio Conti as saying at the meeting of Russian President Vladimir Putin with businessmen in Sochi. Specifically, it was noted that the company allocates these capex as part of market liberalization. According to Conti, Enel plans to allocate this $3 bln to revamp and upgrade gas energy units and double their efficiency.

For the record, Enel acquired Rusenergosbyt for $105 mln in 2006 and allocated several million dollars to purchase part of WGC-5’s additional stock offering in November 2006. The Italian concern picked up a blocking interest in the utility for $1.5 bln in June 2006. At present, the Italian company holds 29.99% in WGC-5’s charter capital. As reported earlier, Enel is prepared to invest in Russian utilities assets in every possible way proposed by the power holding’s management. Therefore, there are many assets in which the Italian party could acquire equity positions.

It can cost Enel up to $1.2 bln to raise its equity position in WGC-5’s charter capital to a controlling interest. Enel could also eye TGC-2 and TGC-4, which are the only gencos not yet distributed among strategic investors. If E.On eyes TGC-2, Enel could acquire TGC-4 in consortium with Prosperity. Up to $700 mln can be allocated to buy out TGC-4’s additional shares and Enel could spend another $400 mln to raise the equity position in the company to a controlling stake.

In our opinion, news of Enel’s further interest in the domestic electric power industry will act as a growth driver for stock valuations of TGC-2 and TGC-4. Our recommendation for these utilities is Buy. We assign a Hold recommendation to WGC-5 with a fair price of $0.157 per share.