Daily analyst comments

The media wired that TGC-4's BoD plans to address at the November 15 regular meetng the company's possible bid in the auction to sell off a stake in Tulskaya Sales Company (TSC). In December 2005 TSC shares, owned by UES, were placed under trust management of TGC-4. Thus, operating on the wholesale electricity market, TGC-4 plans to expand its presence on retail markets as well.

For the record, on November 27 the third round of auctions kicks off to divest stakes in sales companies, including the power holding's interest in Tulskaya Sales Company. The starting price of a stake in the Tula-based company puts the company's valuation at $34 mln. According to our estimates, the company's fair price is $47 mln and therefore TGC-4 will be interested in an opportunity to acquire this sales company at a price which slightly exceeds the starting price.

Overall, TGC-4's strategy of integration with the sales business looks quite reasonable. Compared to heavy investments, allocated by strategic shareholders to boost their holdings in the genco segment, amounts required to gain control over sales companies (according to our estimates, no more than 5-6% of the regional thermal generation value) look much lower. In addition, sales assets will ensure direct vertical integration to the end user for strategic shareholders and to certain extent, hedge against changes in market trends.

Our recommendation for TGC-4 is Buy and the fair price is $0.0016 with 26% upside potential. We have no formal recommendation on Tulskaya Sales Company with an estimated target price of $0.028 per share.