Research Notes

OAO Ammofos is the leading phosphate fertilizer manufacturer in Russia. It controls about 37% of the Russian market. A tremendous upsurge of world prices for fertilizers in 2007 combined with slow costs growth boosted the company's financials. We expect the prices for phosphate fertilizers to stay high in the mid term and extend strong support to the manufacturers' share prices. In our opinion, Ammofos is an attractive investment vehicle for the following reasons:

Ammofos is the market leader among Russian phosphate fertilizer manufacturers and accounts for 37% of the total Russian production.

The company is a part of PhosAgro Holding. This is a vertically integrated company with a full phosphorus fertilizer production cycle. In addition, the holding is the second largest phosphate fertilizer manufacturer in the world.

The efficiency of Ammofos is ensured by reliable supplies of raw materials produced by companies which are also associated with PhosAgro Holding: Concentrated apatite is supplied by Apatity, ammonia is provided by Cherepovets Azot.

The world prices for diammonium phosphate (DAP) produced by Ammofos skyrocketed by 160% in 2007. DAP is the most widely applied fertilizer in the world, and we do not expect any changes in theses trends due to strong demand.

As a result of a favorable situation in the phosphate fertilizer market, the company's 2007 financial results considerably improved. In the year-end 2007 we expect the revenue to grow by 44% to USD 740 mn and net profit to rise in 6.6 times to USD 178 mn.

The company's expenses grew slowly due to the upgrade of its sulfuric-acid production plant and in-house electrical generation facilities which cover all of its electrical power needs.

Presently, the company's P/S, P/E and EV/EBITDA market multiples stand at 1.57x, 6.5x and 4.4x, respectively. This is lower than the multiples of its peers from the developed markets (P/S=1.66x, P/E=17.1x and EV/EBITDA=11.0x) and emerging markets (P/S=2.72x, P/E=18.4x and EV/EBITDA=10.8x). Therefore, Ammofos's undervaluation implies a strong upside potential.

According to our estimates, the fair value of OAO Ammofos is USD 265 per common share and this implies 105% upside. Our recommendation is BUY the company's shares.

Clients of Finam Investment Company may receive full versions of analytical research reports translated into English by sending requests to the International Trading Department.

* Short overviews of equity research reports and sector reports are posted on the website http://www.finamrus.com with a 1-day delay after their full versions are emailed to the company’s clients. To get overviews on the day of their release, please contact your manager at Finam to sign up for full versions of research reports.