Daily analyst comments

On September 2, the Avtovaz automotive company summed up its performance in 8M 2008. The company sold 428,000 Lada cars in the period, up 2.4% over the comparable period in 2007. Of the total number of cars sold, 76,500 were exported, up 16.6% y-o-y.

We view these results as negative. In 1H 2008, the company managed to boost its car sales by 41% y-o-y. The posted results mean that the company has continued to rapidly lose ground on the domestic car market. The main reason lies in stiffening competition from foreign car producers in the same market segment as Avtovaz. Despite the existing high import duties, competition among makers of affordable cars, priced at USD 10,000 to USD 12,000, remains high. To make matters worse, Russian buyers prefer foreign cars, which outperform Russian-designed cars on the road and in terms of optional features available, even though their prices are marginally higher.

We estimate the fair value of one common share in Avtovaz at USD 0.91, which implies an upside potential of 3.3% and corresponds to a HOLD recommendation. The fair price of one preferred share should be USD 0.46, with a downside potential of 2.2%. The recommendation is to HOLD these shares too.