Research Notes

Power Machines is the biggest player on the Russian machine engineering market and holds almost a monopoly position in this segment. After having doubled its 2004 sales profit, the company does not intend to rest on its laurels and has been strengthening its positions on both internal and external markets. According to our estimate, Power Machines stocks are undervalued by the market which, along with the engineering company's promising expansion plans, lays a solid foundation for the company to unlock its share upside potential.

• The consolidated structure of the concern is capable of ensuring the performance of any turn-key operations ranging from design modeling to the marketing of finished products.

• UES' acquisition of a 22.43% stake in Power Machines, as a result of which the energy holding accumulated a blocking interest in the engineering concern, and also the assignment of the concern's 30% block of shares, owned by Interros-affiliated structures, to UES in trust management will allow Power Machines to smooth out its relations with the state and bolster its market position as a whole.

• The considerable depreciation of Russian power generation facilities, which, according to certain estimates, equals 50-60% lays the groundwork for a spike in demand for Power Machines products in the next two or three years.

• In the past several years the engineering concern has been shown fairly sustainable growth and we believe that this trend will persist further down the road.

• Power Machines has quite a large order book which will guarantee a cash influx for the next four or five years.

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Michael Pak

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