Daily analyst comments

According to Interfax, Acron on July 16 announced the start of a road show for a SPO on the LSE. The company intends to place up to 10% of its charter capital during the SPO. The stock will include shares owned by Dorogobuzh and other companies controlled by the main shareholder. The SPO may comprise up to 4% of Dorogobuzh’s stake in the company, put at 8.54%. The remaining 6% belongs to Vyacheslav Kantor, the company’s core shareholder and president of the Russian Jewish Congress. In all, Kantor controls 71% in Acron. The proceeds from the sale of Dorobuzh-held shares will finance Acron’s production modernization program .

Despite expectations, the company has not disclosed a price range for the SPO on the grounds that it did not want to subject the deal to an additional risk amid heightened volatility on the market. Moreover, as a publicly-traded company, Acron is not legally bound to disclose its price range.

Based on the estimate of Acron by the UniCredit and Alfa Capital Markets banks, the underwriters, Acron shares may be placed at USD 200 per share, up by more than 1.5-fold on the current stock valuations. The placement price values the entire issue at USD 950 mn and the company’s market cap at USD 9.5 bn. Unicredit has valued the company at USD 8.2-9.4 bn, or USD 170-200 per share, while Alfa Capital Markets has estimated Acron at USD 9.4-10.7 bn (USD 200-230 per share).

In our view, Acron’s decision not to disclose a price range for the forthcoming SPO will not influence its outcome. The company will likely place the stock at above its current market value, which is confirmed by the high valuations of the company by the issue managers. We expect that investors will take interest in the company, given favorable price trends on the mineral fertilizer market, the company’s strong financial indicators, its competent financial investments and its far-reaching investment plans

Moreover, the successful placement of shares by Acron will benefit Dorogobuzh, which will receive hefty funds for development. However, only about a third of the total proceeds will go to modernize production, while the remaining proceeds will allow Dorogozuzh to boost its net profits. This enhances the investment attractiveness of its preferred shares, given that the company’s charter requires it to slate at least 10% of its net profit for dividends on preferred shares.

Out target price for Acron (RTS: AKRN) shares is USD 162.5 per share, which implies an upside potential of 32% to the current stock valuations and corresponds to BUY recommendation. Our target price for Dorogobuzh (RTS: DGBZ, DGBZP) is USD 1.94 per common share and USD 1.36 per preferred share, which, in both cases, implies a significant upside potential and corresponds to BUY recommendation.