Research Notes
RusHydro: new management- new prospects
| 18.05.10 |
A series of significant events have occurred since our last valuation of RusHydro, which, in our view, form a new, positive image for the company and require its revaluation and upward revision of target prices. The genco has specifically released strong 2009 financials and began the placement of an additional share issue. There is now more clarity on the terms and parameters of the restoration of the Sayano-Shushenskaya HPP.
New team of top managers. The performance by a new team of top managers, formed by RusHydro by the end of 2009, has already evoked a positive response from investors. We are upbeat on the managerial reshuffle at the company.
New tariffs. The 2010 tariffs set by the Federal Tariff Service (FST) for RosHydro have somewhat disappointed investors. Instead of the expected rise, the average tariff for the genco has declined by 6.4%. However, the negative impact from the tariff decrease could be offset by a boost in electricity sales on the free electricity market.
Rebuilding of Sayano-Shushenskaya HPP. RusHydro phased in two generating units at the Sayano-Shushenskaya HPP in 1Q2010, as expected. Another significant positive event has been the release of information about the potential 18% shrinkage of the budget for the plant’s restoration.
Development prospects. At the end of 1Q2010, RusHydro management announced plans to develop the company. The genco notably plans to expand into foreign markets in a bid to diversify and determine new sources of growth. The released information about the possible handover to RusHydro of non-core energy retail assets to RAO ES of the East books and the potential acquisitions by some other energy retail companies reveal the company’s determination to actively develop its electricity retail segment. We are positive on the unveiled plans; however, it is not yet possible to estimate the possible effects from the measures planned.
Financial statement for 2009. RusHydro has released a positive FY2009 financial report, which has outpaced market expectations and our own estimates. The genco substantially raised profitability in crisis-ridden 2009. The financials reported indicate the genco’s competitiveness and its significant growth potential.
Based on our estimate of a fair value for RusHydro shares, made using a DCF approach, we reiterate our BUY rating and raise the target price for the stock to USD 0.084 at the end of 2010.
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Sectors: Power Utilities, Heat GenerationCompany: OJSC RusHydro