Research Notes

We revised our estimate for the bank's fair value after the completion of the SPO in March, the release of FY06 IAS financials in early May and Q107 results. At present, the lending institution's stocks trade below the SPO placement price (Rub 89,000 ($3,425)) and the bank looks considerably undervalued on fundamentals.

Based on 2006 performance the bank maintained interest earnings at a high level, while last year this revenue item decreased against a record level seen in 2005 due to tougher competition. Longer term, we expect to see interest revenues falling. In addition, tightening of CBR's monetary policy (higher rates for allocations to the mandatory reserve fund) could put downward pressure on the profitability of banking activities.

However, overall we are quite upbeat about the upside potential of Sberbank shares. Having raised its equity capital during the SPO ($8.8 bln), the bank could get the most out of an expanding national economy, rising household income and the use of banking services among a larger number of households. We are positive about the consequences of an anticipated split involving Sberbank shares for the purpose of broadening the investor base and improving stock liquidity.

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Olga Belenkaya

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