Research Notes

High potash fertilizer prices coupled with an intensive program aimed at bumping up output enabled UralKaly to deliver considerable improvements in its H107 financial indicators. Favorable market conditions have considerably heated up interest in UralKaly stocks, as a result of which the company's beneficial owner decided to sell 10% of the company's shares on the open market, looking to raise some $740 mln. The following factors underscore the strong investment appeal of the concern's securities:

In 2007 the company reported stronger operating and financial indicators: potassium chloride production surged 33% in January-June, sales soared 58% and net profit nearly doubled.

At the outset of the year Belarusian Potassium Company, the export arm of UralKaly, managed to jack up prices by more than 50% on the company's primary spot markets – Brazil and Southeastern Asia.

Taking into account a spike in prices on spot markets, Chinese concerns, the main consumer of UralKaly's products, could expect to see prices in relevant contracts revised upward, as we think, by around 20%.

UralKaly has been pursuing a large-scale investment program whereby it targets boosting output of potassium chloride to 7 mln tons a year.

In view of strong operating efficiency and the reasonable dividend policy the company's stocks could be of interest to many institutional and strategic investors. Therefore, there is a strong probability that the company's shares will be offered to investors at the upper end of the bookbuilding range.

In line with our estimates, the fair value of UralKaly's common share is $4.38, which implies 19% upside. We assign a Buy recommendation to the company's stocks.

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Michael Frolov

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