Research Notes

As one of the strongest consumer companies listed on the stock market, Wimm-Bill-Dann continues to hold leadership positions on the market for dairy products, which account for some 75% of its earnings. In the short term, the company's new management team is looking to optimize the corporate brand portfolio and also boost beverages sales using more efficient measures to increase demand for its products and agreements with major retailers. Launching new high-yield products on the market will allow Wimm-Bill-Dann to improve its profitability, which will produce a positive impact on the investment appeal of Wimm-Bill-Dann stocks.

In line with our calculations based on the DCF method, the year end-2007 target price for Wimm-Bill-Dann shares is $81.60 per share. Given upside potential of some 22% to the current market prices, we assign a Buy recommendation to the diary giant's common shares.

The company's 2006 financial statement showed a 26.4% y-o-y upsurge in sales to $1,762.1 mln, while net profit during the reporting period tripled. Alongside this, Wimm-Bill-Dann achieved a surge in margins, which highlights the company's commitment to cost-containment.

The strategy geared towards restructuring the company via optimization of its business structure and reduction of the number of legal entities which make up the group will cut the cost side in the long term and also enable WBD to slash its effective tax rate. The effective corporate profit tax rate dropped from 47.5% in 2005 to 29.7% in 2006.

A successful flotation by WBD shareholders of a 10% stake among major institutional investors on RTS last October vindicates the strong appeal of the company's shares among investors and also minimizes the risks associated with the company's insufficient share liquidity on Russian exchanges.

Last May the corporate ratings service of international rating agency Standard & Poor's announced the upgrade of Wimm-Bill-Dann's corporate governance rating from 7 to 7+, which is the highest ratings among Russian issuers. This confirms the high efficiency of activities carried out by the company's BoD, including the impact produced by independent directors on decision-making.

We revised our valuation model for Wimm-Bill-Dann shares and upgraded our target price in view of the diary giant's 2006 operating and financial indicators, as well as new forecasts for the pace of growth of the dairy products, juice and baby food markets.

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Sergey Filchenkov

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