Research Notes

We reported earlier in "Regional Gas Distribution Entities: Links in a Big Chain” on March 15, 2007 about the high investment potential of gas distribution companies’ stocks which coincide with the strategic interest of Gazprom, the future investment influx in the gas transport infrastructure and the expected rise in transportation tariffs.

In our latest report on the highly lucrative gas sector "Regional Gas Distributors: Gasification Rate Grows" on November 15, 2007, we highlighted the sector’s most attractive investment vehicles. The average yield of the recommended companies has exceeded 70% in over 2 months.

Many of the regional gas distribution companies’ current market values are close to our fair values. However, there are still some companies with a considerable upside potential in the sector. We highlight Orenburgoblgaz, Komigaz and Kostromaoblgaz which are considerably undervalued in terms of EV/Pumping volume ratio.

Based on our forecasts, the smaller companies in the sector should draw investors' attention in the nearest future. These companies have all the advantages and drivers of companies with higher liquidity, which has already considerably increased their capitalization. Our recommendation is to pay more attention to the gas distribution companies with lower liquidity.

We also want to draw an investor’s attention to the gorgazes, which have the already installed and functioning pipeline infrastructure. Gorgazes have a better short-term growth potential than the average oblgaz, which would require an additional installation capex.

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Vladimir Sergievskiy

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