Daily analyst comments

On October 22, Interfax reported, quoting sources at companies, approved valuations of Novoship and Sovkomflot as part of their merger. Novoship is valued at $3.26 per common share and $2.01 per preferred share. This share price provides for the company’s valuation at $1,480 mln. As part of the merger procedure, 50.34% in Novoship is to be contributed to Sovkomflot. Russian Federal Property Management Agency (Rosimushchestvo) will receive Sovkomflot’s 44% additional share issue as payment for this stake.

According to our estimates, Novoship’s valuation is close to its fair price and overall, reflects the company’s current financials. By and large, Novoship’s market multiples correspond to similar ratios of stable foreign tanker companies: P/E(2007) – 6.9, EV/EBITDA(2007) – 6.0 and EV/Sales(2007) – 3.3. An important factor is relatively low valuation of the pref/common ratio at 38.3%, while the current discount tops 42% and the weighted average discount has been 41% since the beginning of 2006.

We believe that even though the company’s valuation in line with the fair price does not directly impact the cash positions of minority shareholders, it sends a signal that the merger procedure will be close to market conditions further down the road. In our opinion, such valuation will reduce specific risks of investment in the company’s shares. For this reason, we are in the process of upgrading our target price for Novoship’s common and preferred shares.