On July 16, 2008 trade in Federal Grid Company shares (RTS:FEES) is to kick off on the RTS and MICEX stock exchanges. The shares will be listed on the B quote list. The starting price is set at RUB 0.5, or USD 0.022, per share. The price range for the first day of trade is set at plus/minus 35%.
Federal Grid Company of United Energy Systems ranks among the largest power of the grids in Russia and Europe. The company is expected to have a market cap of USD 24 bn. The company is a natural monopoly provider of electricity via 110 to 1,150-kilowatt transmission networks. The company owns 120,000 kilometers of power transmission lines and 796 substations with a total capacity of 310,000 megawatts. The company generates about 97% of its revenues on payments for electricity transmission services. Before 2015, investments by the company are expected to surpass USD 60 bn.
For the first several months after the start of trade, we expect a correction in quotations for the company's shares and highly volatile trade in the shares. However, trade should become steadier towards the end of 2008, after which the shares may become top picks among moderately conservative investors in the Russian power utilities sector, thanks to the company's stable business and its predictable cash flows. Investors are advised to buy Federal Grid Company shares immediately after the start of trade in the shares, due to expectations of a technical correction in the shares.
We do not currently have a recommendation on Federal Grid Company shares.
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