Research Notes

On Thursday, July 6, a public auction was held to sell 47.36% of Yaroslavl Marketing Company, owned by UES. Transneftservice S was named the winner after having placing the winning bid of $12 mln. Six contenders took part in the auction and the final bid overshot the initial price by more than 2.3-fold.

For the record, the starting price was set at no less than the threshold value found by an independent appraiser ($6.6 mln), which put the company's market cap at $13.99 mln. The estimated capitalization of Yaroslavl Marketing Company, which follows from the auction's results, came to $33.4 mln, or 7 times higher than the book value of the company's assets. The auction valued Yaroslavl energy system's marketing assets in line with the following comparative indicators.

It's noteworthy that estimates of only five companies out of 32 entities under valuation topped those of Yaroslavl Marketing Company based on auction results, which underscored our conclusions (see our Daily dated May 18, 2006). In our opinion, insufficient market focus on marketing units leaves room for interesting investment opportunities and speculative positions in a number of undervalued stocks.

The July 6 auction to sell Yaroslavl Marketing Company was the first of many in terms of privatization of Russian energy assets and could draw market players' attention to marketing assets of Russian energy systems, which have so far gone largely unnoticed by investors We assign a Buy recommendation to the stocks of the following 19 marketing units out of 33 concerns whose shares trade on the equity market.

Simon Birg

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