Research Notes
Mostotrest: moving towards transparency
| 25.12.09 |
On December 18, we had a meeting with Mostotrest management and the level of transparency shown came as a pleasant surprise. During the meeting, the company disclosed in detail all of the production and financial data that we were interested in, and informed us about its plans and development prospects. The information released confirms our opinion that Mostotrest is currently the most appealing investment opportunity in the construction sector.
Mostotrest expects revenue growth in 2010. The company is looking forward to 2010 with confidence and targets revenue for next year of RUB 35-40 billion, a gain of 10-25% on 2009.
Olympic projects. The key projects for the company, which expected to generate roughly 40% of its 2010 revenue, related to Sochi Olympics 2014 transport infrastructure. The core project from this pool is the construction of the Adler - Krasnaya Polyana highway. The project is scheduled for completion in 2013 and, given its federal significance, neither we, nor Mostotrest management, expect any disruptions in the financing of this project.
Highly diverse order book. A fairly large pool of projects in European Russia bring the company the remaining 70% of its revenue, making it less sensitive to the potential disruptions in funding that could occur at some construction sites.
Growth prospects. Mostotrest management has emphasized the company’s ability to urgently expand production capacity in reaction to resurgent demand in the sector. The resumed financing for the construction of the Moscow Fourth Ring highway and the start of construction works on the toll road between Moscow and St. Petersburg are seen as promising drivers for further business growth.
Profit margins. The company links the strong profit margins in 2009 to the completion of loss-making projects. Another factor behind profitability growth is the economy-of-scale effect achieved on the rise in the volume of construction work. The company expects no significant changes in its margin levels in 2010.
Crisis opens up additional opportunities. Mostotrest management has pointed out that the crisis has lowed competition in the bridge-construction sector, which opens up additional opportunities for the company. The company views current unfavorable conditions in the construction sector as a good opportunity for growth through acquisitions and points out the possibility of large-scale acquisitions being made as early as 2010.
Moving towards transparency. Management has reaffirmed the company’s determination to enhance its information transparency. In 2010, the company specifically aims to release IFRS financials for 2008 and 2009.
We reiterate our BUY rating for Mostotrest, with a target price of USD 1 435 per share and an upside potential of 129%.
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Sector: ConstructionCompany: OJSC Mostotrest