Daily analyst comments

The Valuation committee of Unified Energy System of Russia (RTS: EESR) on February 5, 2008, is to approve the valuation of Mosenergosbyt (RTS: MSSB). Interfax reports that the discussed value exceeds USD 1.3 bn. The auction for the stake of Unified Energy System in Mosenergosbyt is slated for March 2008. This news drove Mosenergosbyt's capitalization up by over 20% to more than USD 630 mn.

Mosenergosbyt is the largest power retail company in Russia. It services over 5 mn customers in Moscow and the Moscow Region. In addition to Mosenergosbyt, RAO UES plans to sell Samara, Saratov, Chuvash, Chita, Ryazan, Ulyanovsk, Arkhangelsk, Smolensk, Kursk, Mordovia and Pskov power retail companies in March. Tambov, Penza, Chelyabinsk, Saint-Petersburg and Krasnoyarsk power retail companies are expected to be sold in May.

The news is positive for the company. This valuation exceeds the current market value by more than 2 times. If the auction would be held in March and the shares would be bought at the initial price, then the buyer of RAO's 50.08% stake would be obliged to send a buyout offer to minority shareholders. If the company can not find a buyer because of the high price, then the auction is likely to be put off till May. We lean more to the second scenario because Gazprom was considered as the most likely potential buyer and it values the company more modestly.

We assign BUY recommendation to Mosenergosbyt. The fair value is USD 0.05 per share.