Research Notes

Novorossiysk Sea Commercial Port (NSCP) is Russia's biggest and stably developing port operator, whose strategic location will allow it to become the most important traffic center of the trade route linking Europe and Asia. Among the key factors that form the company's strong investment appeal we would like to point out the following:

• Growing volumes of international trade will have a favorable impact on the company's earnings;

• Expanding containerization trends will produce a benevolent impact on the profitability of port business in the future;

• High profits of port business will make it possible to expect stable growth in the company's cash flows;

• Development of the Trans-Siberian railway, as an international trade route, is able to bump up the company's cargo turnover;

• The key role of NSCP in the distribution of transport flows in Russia's southwest regions will guarantee stably big demand for the company's services;

• Sizeable investments in the roll-out of NSCP's infrastructure are able to ramp up the port's loading capacity and boost the company's earnings;

• Stocks issued by port operators are traditionally marked by low B ratios and the high degree of stability of its stock valuations, i.e. they serve as attractive investment vehicles in times of heightened market volatility.

Based on the results of our valuation of NSCP's fair value we assign a Buy recommendation to the company's commons with the year-end 2007 target price of $0.063 and 19% upside potential.

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Vladimir Sergievskiy

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