Research Notes

With a market share of 31%, Lebedyansky remains one of Russia's leading juice producers. Along with a steadily increasing market share, we highlight the company's plans to venture into the promising baby food segment and its intention to boost mineral water production, which could produce tangible positive impact on financials. According to our estimates, Lebedyansky holds robust mid-term upside potential, and its high level of transparency and high share liquidity are another reason why investors are advised to buy the company's shares.

• Lebedyansky's juice sales surged to 682.5 mln l in M906, up 28% y-o-y. The juices segment grew by 22% in terms of physical volumes and the baby food segment also expanded by 36.9% y-o-y.

• For the record, Lebedyansky picked up Troya-Ultra (Saint Petersburg-based juice producer, its brands are: Dolka, Nectarinka, Troya Zolotaya etc) in October 2006 as part of its strategic effort to lift output. According to our estimates, Troya Ultra could enable Lebedyansky to boost its market share to 33%.

• In July 2006 Lebedyansky acquired Moscow region-based logistics company Enter Logistics. Enter Logistics owns 8,000 sq. m of storage facility, which could help Lebedyansky reduce its logistics costs and bolster its positions in the saturated Moscow market.

• Lebedyansky kicked off production of mineral water under the Lipetsky Buvet brand name in 2005. FY05 sales totaled 4 mln l, while M906 figure climbed to 29.2 mln l. The juice producer expects to sell some 35 mln l in 2006 and 70 mln l in 2007.

• Lebedyansky's M906 financial statement showed that revenues and net profit grew 37.5% y-o-y and 9.8% y-o-y, respectively, net margin was 14%, due to higher COGS and advertisement costs. However, we expect that the cost side will decrease in Lebedyansky's revenues in the coming years, thereby shoring up its financial performance.

We are raising our year-end 2007 target price for Lebedyansky's common shares to $93.20. We assign a Buy recommendation to the company's common shares, since their upside potential is over 15%.

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Sergey Filchenkov

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