Daily analyst comments

On September 22 the Avtovaz automotive company released the outcome of an EGM it held on September 5, 2008. Shareholders have approved changes to the company’s charter, which require the company to slate 10% of its net profit to a dividend payout on preferred shares. Renault was among the initiators of this measure. The main goal pursued is to avoid potential conflicts with minority shareholders who hold the carmaker’s preferred shares. In 2002, the provision to pay out 10% of net profit in dividends was removed from the company’s charter, resulting in a series of lawsuits against the company.

The news will undoubtedly encourage holders of Avtovaz preferred shares, as for the past few years, the company has paid low dividends to its shareholders. In 2007, for instance, the company paid out a total of USD 21.2 million (RUB 536.1 million), or 13.6% of its net profit, in dividends. Of this total, a quarter went to dividends on preferred shares, at 3.4% of the net profit. The dividend yield on the shares stood at 2% of net profit on the date the shareholders register was closed. A rise in the payout to 10% of net profit will triple the dividend yield on the shares, making the shares more appealing in the eyes of investors. The plan to alter the company’s charter, first voiced in late June, 2008, has already benefited quotations for the company’s shares.

We estimate the fair value of one common share in Avtovaz at USD 0.7 per share, with an upside potential of 25.4%, which corresponds to a BUY recommendation. The fair price of one preference share should be USD 0.39, with an upside of 60%, which corresponds to a BUY recommendation.