Starting in 2009, Rusenergosbyt, a Russian-Italian private operator, may take the place of Mosenergosbyt (RTS: MSSB) as provider of electricity to the Moscow metro system. Rusenergosbyt’s core shareholders are the ECH group with 51% of its shares and the Italian Enel company (49%). Replacement of the electricity supplier is yet to be finalized. Rusenergosbyt began to cooperate with the Moscow metro in 2004 after winning a contract to install an automated electricity meter on a Moscow metro line.
The departure of such a major client would have an adverse impact on Mosenergosbyt business. The city metro consumes roughly 1.8 billion kilowatts/hour of electricity annually, or 2.6% of Mosenergosbyt’s total electricity supply. We should also note that the city metro buys nearly 100% of its electricity under a yearly budgetary plan and its departure would cap the electricity company’s ability to project its supplies. The deviations from projections would then force Mosenergosbyt to buy more electricity on the wholesale electricity market at high spot prices, which would negatively affect its financials.
Our target price for Mosenergosbyt shares (RTS: MSSB) is USD 0.014 per share, which corresponds to a SELL recommendation.
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