Daily analyst comments

At a session on April 4, the UES BoD (RTS:EESR) made a number of important decisions.

Firstly, the board has approved dates for delisting UES shares on the MICEX and RTS. As planned, UES shares are to be excluded from the MICEX and MICEX Energy indices by May 15 at the latest, and from the RTS index after April 30.

Secondly, the board approved June 6 as a date for the final closure of the company's shareholder register. Shareholders that will be included on the register on the date of its closure will be able to swap their UES shares for shares in newly-formed companies. Exchange trade in the shares will be halted on the same date. After the register's closure, UES shares will continue to trade on the over-the-counter market, but these shares will not give their holders the right to ownership of targeted-structure assets. The buyers of UES shares after June 6 will only be able to exchange one UES share for two shares in a power distribution grid (FSK) .

Finally, the board recommended abstaining from dividend payments for 2007. The recommendation was made on government instructions. The matter is that the company has already slated RUB 75.8 bn in 2007 net profit for investments. The company is experiencing a net profit shortage of RUB 47 bn under its investment program. Of the RUB 452 bn in net profit made in 2007, only RUB 29 bn has been backed with real cash assets.

Part of this money will go to eliminating a shortarge of funding under investment programs for HydroOGK and FSK. The money will be invested in additionally issued shares in these companies. The funds slated for investments have now been capitalized in the assets that UES of Russia shareholders will be entitled to upon UES reorganiztion.

The decisions made, which lived up to expectations, should have no tangible impact on UES shares in the short-term. But the exclusion of UES shares from the MICEX and RTS indices is to put a downward pressure on the current stock valuations as inclusion of shares on these indexes is a prerequisite for their inclusion in the investment portfolios of a number of funds. We therefore reiterate our recommendation that short-term investors, with an investment horizon of under one year, sell UES shares by mid-April at the latest.

Our recommendation to long-term investors is BUY UES shares. The target price is USD 1.77 per share.