Research Notes

On April 25, VTB announced the estimated bookbuilding range for its planned IPO of common shares and global depositary receipts (GDRs) of Rub 0.113-0.139 per share ($8.77-10.79 per GDR), which corresponds to VTB's pre-IPO market cap of $22.85-28.10 bln.

We recommend our clients to take part in VTB's IPO with a target price of Rub 0.09 ($0.0035) to Rub 0.14 ($0.0054) per share. In our view, the ideal price for the initial public offering is Rub 0.12 per stock, since when shares are floated close to the upper end of the target placement range there is less chance of sustainable growth in the stock in secondary trading.

Alongside this, we view investments in VTB shares as extremely attractive in the mid-term outlook. The spike in the bank's equity capital in the course of the IPO (according to our estimates, from $7 bln to $13.8-15.4 bn) will be accompanied by a narrowing of the P/BV multiple, the key benchmark metric for the bank's express valuation, to about 2.1-2.4, which is far below average market indicators. Thus, based on fundamentals, we believe VTB stocks are destined to move to the upside, at least to a level equal to a 3-fold increase in P/BV ($41-46 bln or Rub 0.158-0.176 a share) and we expect this to pan out as early as year-end 2007 (upside potential of 27-40%).

We believe that the non-competitive bidding mechanism involves the risk for private investors of buying into shares at an inflated price. For this reason, investors are advised to weigh the option of participating in an IPO, taking due account of the above risks. Long-term investors are advised to participate in the IPO who are prepared to buy into this stock and wait out a possible decline in market trends.

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Olga Belenkaya

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