Research Notes
Novorossiysk Commercial Sea Port: unique asset with a hefty cash flow
| 07.12.09 |
At present, NCSP is practically the sole investment opportunity in the Russian port infrastructure segment. NCSP is Russia’s largest and Europe’s sixth largest port operator. We resume our coverage of Novorossiysk Commercial Sea Port (NCSP).
Key upside drivers:
- A unique geographic location on a promising trade route from Russia to Europe and an elaborate investment strategy should guarantee the company’s development. Novorossiysk seaport is, in fact, the main export gateway from the southern and central regions of Russia to Europe and Southeast Asia. NCSP can also receive import cargoes.
- Cargo turnover growth – even during the crisis. In the first ten months of 2009, cargo turnover at Novorossiysk Commercial Sea Port advanced 5.6% y-o-y. Exports of key commodities did not really change in this period, despite a drastic fall in product prices. NCSP tariffs remained stable, which helped the seaport boost revenues despite the economic recession.
- Construction of new facilities. NCSP has a large investment program to increase its capacity. When the economy recovers and cargo turnover rises, these new capacities will enable NCSP to extend its revenue.
- Development of container segment. The fact that the container freight segment in Russia is relatively underdeveloped could enable Novorossiysk Commercial Sea Port to increase container turnover more quickly than other types of cargoes. Moreover, we expect that NCSP will load up its container capacity. Container transshipment is one of NCSP’s most profitable business segments.
- NCSP is valued much cheaper than foreign peers. Novorossiysk Commercial Sea Port is valued at over 50% discount to foreign peers on P/E, the most important coefficient in the eyes of investors. On EV/EBITDA, NCSP is valued at a 32-36% discount to peers from developed economies and at a 46-49% discount to peers from emerging economies.
We assign a BUY rating to Novorossiysk Commercial Sea Port with a 12-month target of USD 0.221 per share. Robust business development, rising cargo turnover and large stable positive cash flows should help NCSP shares to quickly realize their upside potential.
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Sector: TransportationCompany: Novorossiysk Commercial Sea Port