UES: the last year of operations is to be extremely exciting
UES will cease to exist in July 2008 and the power holding's shareholders will be co-owners of over 30 large companies appealing for investors, friendly to minority shareholders and possessing sufficient share liquidity. In this report, we valued UES using the sum-of-the-parts method which underscored that the power holding's shares are significantly undervalued.
UES is going through a string of large-scale transformations which will produce a tangible impact on the company's market cap. In September 2007, WGC-5 and TGC-5 are to be unbundled from the power holding. The reorganization will be finally completed in July 2008 when all other companies of the target industry structure are spun off.
After the company's reorganization is complete, a UES shareholder will own stakes in 6 WGCs, 14 TGCs, Hydro WGC, 12 IRDGCs, FGC and Holding of Far East Companies to which the power holding's stakes in sales companies not sold off at auctions will supposedly be assigned. As a result, large utilities will be established with strong share liquidity and investment appeal.
After the split is complete (by August 2008), the power holding's market cap will be dramatically lower than the current market cap. The utility's shareholder will remain the power holding's shareholder and will own stakes in new unbundled companies with liquid shares. All unbundled companies will have their shares listed both on RTS and MICEX.
In this report, we present adjusted estimates of fair values of all utilities segments. Based on the performed valuation of the power holding's fair price using the sum-of-the-parts method, we assign a Buy recommendation to UES with a target price of $1.85 per common share and $1.67 per preferred share. The upside potential is 32% and 40%, respectively.
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Simon Birg
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Sector:
Power Utilities
Company:
UES
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