Research Notes

On May 3, 2007 the Board of Directors at Bank Vozrozhdenie announced the per-share placement price of $59 (Rub 1,520), with a discount of some 4% to the market price. Proceeding from the announced flotation price, the bank could net $177 mn for 3 mn shares.

Our estimate for the bank's fair value is $62 per share. We are upbeat about the bank's current financial performance and development strategy. With quite decent market positions of the bank, the stably high pace of business growth which substantially exceeds the market average, low risks and strong corporate governance standards, virtually the only weak point is too heavy opex.

Alongside this, the bank intends to considerably improve its margins and business efficiency ratios in the mid-term outlook (to push up ROE to 20-25% and Cost/Income to 60-62%). We are of the opinion that if management plans get off the ground, this will be a primary growth driver for the bank's market cap.

In our view, drawing additional capital will help the bank sustain high business growth rates in coming years, while higher free float will enhance its liquidity and the investment appeal of its equities.

As the placement price was determined with a discount of approximately 4% to the market price and implies 5% upside to our estimate of the fair value, we recommend investors to pick up the bank's SPO stocks.

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Olga Belenkaya

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