Research Notes

Given active development of the Russian downstream segment and the state's policy targeting deprivatization of stakes in Bashkir fuel and energy companies, strategic and portfolio investors have become increasingly interested in shares in Bashkir fuel and energy companies. In the event of statalization most risks will ease considerably and this will strengthen the investment appeal of these stocks due to upbeat prospects of incremental cash flows with available advanced technological equipment and also further topline growth. Partially suspended trading in Bashkir fuel and energy stocks (with settlements in the register) again underscores the state's serious commitment to deprivatizing them.

As a result of out analysis, we found the fair price of Bashkir refineries to be as follows:

The Novoufimsky Refinery (Novoil) is the youngest and most advanced refinery in the Republic of Bashkortostan whose products comply with international standards and enjoy demand both in Russia and abroad. Thanks to implementation of the large-scale program to upgrade production facilities, the company has significantly ramped up the share of high quality products in output breakdown, thereby managing to achieve one of the highest refining levels (81%) among domestic industry peers. Novoil has been constantly ramping up refining volumes. The existing refining capacities presuppose higher capacity utilization which increases the investment appeal of Novoil shares.

The Ufimsky Refinery is one of Russia's oldest petroleum refining enterprises with leadership status among Bashkir peers in terms of petroleum processing volumes. Equipment revamping performed enables the company to process high sulfur crude and gas condensate. Thus, the company has improved its product quality and output of light oil products.

Ufaneftekhim is one of the most advanced Russian companies in terms of technological equipment. A diversified set of units ensures complete production cycle and output of wide array of oil products and petrochemical products for the company. Ufaneftekhim produces not only standard set of oil products (gasolines, diesel fuel and fuel and oil) bur also high valued-added products, such as aromatic hydrocarbons (benzol, ortoxylene, paraxylene, toluene), synthetic alcohols, plastifiers, etc. An additional factor of the investment appeal is significant free float.

We view the Novoufimsky Refinery and Ufaneftekhim as the most promising stocks of undervalued Russian petrochemical companies with advanced technologies.

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