Daily analyst comments

Reuters reported quoting NorNickel CEO Denis Morozov that the metal maker, which is set to unbundle utilities assets into a standalone company, plans to float its shares on the stock market in Moscow and London. According to his estimates, the market cap of the utilities company, whose unbundling NorNickel's shareholders are to address on December 14, will amount to some $7 bln. The metal maker will make a buyback offer to shareholders that cast negative votes on utilities assets unbundling or abstain from the voting, at Rub 5,300 ($211.49) per common share.

It should be noted that at present, NorNickel's share price is Rub 6,790 ($272), which is 28% higher than the buyback price. Therefore, the metal maker's shareholders will hardly be interested in the buyback offer. Most investors will vote affirmatively on the reorganization. Judging by the Polyus Gold case, this move will obviously prop up the company's market cap after the unbundling. Based on the current market valuation of assets in the spun-off company, Energo Polyus could be valued at $6.8 bln (13.5% of NorNickel's current market cap). We estimate the company's fair price at $9.2 bln.

Installed capacity of power plants of the spun-off company will total 9.2 GW (power plants of WGC-3 and TGC-14 were taken into account). According to our estimates, the market cap of the Russian utilities industry is $134 bln and Energo Polyus will account for up to 6% of this amount. We have an upbeat outlook on the company and a result of scheduled liberalization of the utilities market investor interest in utilities stocks will sustain. However, a lot will depend on how efficiently the management of Energo Polyus performs.

Given that the utilities market will see huge flotations in 2007-2008 (nearly 15 more additional share issues), NorNickel could face problems with investor demand. WGC-2's recent placement underscored that portfolio investors remain skeptical about utilities assets so far. NorNickel will likely start searching for strategic investors, to which a blocking stake in the new utilities company will be assigned.