Daily analyst comments

On September 12 the company's common shares dropped by 4.9% and its preferred shares lost 3.4% whereas the MICEX index gained by more than 6%.

We link the pullback in the shares with the fact that on September 11 the company closed the register of shareholders entitled to take part in its EGM on October 30. The meeting will discuss the spinoff of the company's cellular assets into a separate legal entity for subsequent sale.

As we have repeatedly noted, the sale of cellular assets by the company gives it an excellent opportunity to raise the funds its needs to develop its core operations and its broadband data transmission business. Moreover, the company's cellular business currently shows a steady downward trend. In 1H 2008 the company saw revenues from the cellular business drop by 18% y-o-y and its base of cellular subscribers dwindle by 3%. At the same time, the company's cellular business is of interest to other market players, whose representatives have many times expressed interest in buying the asset. Vimpelcom is one of the main contenders as the company is not yet represented in the Far Eastern cellular phone market due to a lack of required frequencies.

That said; much will hinge on whether the company will be able to sell the business at a profit. We estimate the value of the assets at between USD 100 million and USD128 million.

Investors are advised to buy into both types company shares. Our target price for one common share is USD 6.7 and that for one pref is USD 6.44. At present, the company's shares, like shares in all of the inter-regional phone companies, are very attractive in fundamental terms.