Research Notes

UTair: A diversified air carrier

UTair is a multi-profile dynamic air carrier with a diversified business structure and strong focus on passenger flights and helicopter operations. We highlight the following company's value-drivers:

• UTair's EBITDA 11.5% margins is considerably higher than the average margins among other sector leaders which are below 7%.

• Profitable helicopter operations contribute one third of the company's total revenue with an EBITDA margin at 14-15%, and we expect further growth of this segment, backed up by domestic market growth and new international contracts.

• UTair ranks among the world's top four helicopter operators, and controls about 25% of the Russian helicopter operations market. It dominates the helicopter markets of the Urals and Western Siberia.

• The sole private enterprise among the top 5 sector leaders lacks governmentally imposed growth inhibitors, which allows it to pursue an organic growth policy. The company has an investor-friendly IR team.

• The company is considerably undervalued in comparison with emerging and developed markets peers, with EV/Sales 2008 below 0.5.

• We expect high revenue CAGR of 28% in 2006-2009, which based on our estimates in 2007, is to increase by 45%.

Based on our valuation model, we recommend to buy the common shares of UTair. Our fair value is USD 1.16 per share at the end of 2008. This implies a 67% upside potential.

Vladimir Sergievskiy

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