On Wednesday Agriculture Minister Alexei Gordeyev voiced forecasts for the 2008 grain harvest at a conference in the Interfax central office. He said the total grain harvest could reach at least 85 mn tons, up by over 4% y-o-y, including 40 mn tons of food grain.
In our view, the fairly upbeat forecast for the grain harvest in 2008 could prompt the state to ease its policy on the regulation of Russian grain exports. According to the minister, an increase in Russia's grain reserves and more stable grain prices on the domestic market relieve the state of the need to prolong prohibitive export duties on grain crops. At the end of January 2008, the Russian government enacted a resolution to quadruple the prohibitive temporary duty on exports of wheat and barley to 40% of their customer value, but no less than EUR 0.105 per kilo.
In our view, the state's intention not to prolong the high export duties on grain crops (their validity is to expire on July 1, 2008) could emerge as a serious upside driver for the agricultural export company's shares. Given high grain prices on global markets and the group's robust exports earnings, now at about 15% of its total revenues, we believe that the news may have a beneficial effect on the Razgulayi group's stock valuations.
We estimate the fair value of Razgulyai at USD 10.9 per share, which implies an upside potential of more than 57% to the current stock valuation.
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