Research Notes

Due to its current state, the Russian power grid infrastructure not only restricts Russia’s economic growth potential but, on some occasions, poses a direct threat to the stable functioning of some Russian regions. The ongoing reform of the industry is intended to ensure the necessary inflow of investment into the modernization and expansion of the power grid infrastructure. We expect the least intensive competition in the power grid construction segment. Therefore, we have singled out companies involved in the construction, repair and servicing of power grid facilities as among the best potential vehicles for investment.

Among all of the companies under analysis, we primarily single out Spetssetstroy. This company, whose main manufacturing activities are concentrated in those regions that require the heftiest investments in electric power infrastructure, stands to gain the most from the expected growth in capital investments into power grid companies in coming years.

We also turn investor attention to Sevzapelectrosetstroy shares. This company ranks among the largest in its segment, with a segment market share of 7-7.5%, and enjoys robust profit margins by industry standards. For all that, the fact that the company saw its revenue from non-core activities rise to nearly half its total proceeds, adds to uncertainty as to its prospects for development.

As regards Zapsibelectrosetstroy, Vostok-sibelectrosetstroy and Noyabrsksibelectrosetstroy, we point out that these companies hold strong market positions in their main operational regions. Sales of large stakes in these companies by IES Holding could emerge as an upside driver for their stock valuations. However, the uncertainty over these companies’ future owners and their limited territorial diversification make investments in their assets risky.

Vladimir Sergievskiy

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