Flash notes

Despite his previous decision regarding Parliament’s dismissal (see Sokrat October 9 flashnote), President Viktor Yuschenko put his decree on hold temporarily to ensure that Parliament passes a series of emergency anti-crisis measures. After accepting the President’s version of the anti-crisis legislation in the first reading last week, the Parliament finally passed a law on Friday, October 31, 2008. The law was supported by 243 MPs out of 450.

After an adventurous summer, the young Ukrainian business wizard is about to learn many useful lessons and to face his toughest opponent yet.

Depression on the steel market is confidently pushing its way upstream. The record-high USD 600-700 per mt domestic coke prices during Jul-Sep had been highly detrimental for domestic steelmakers. However, for more than a month, Ukrainian coke and coal prices have been falling. Last week, the price of coal imported from Russia has at last joined the downward dynamics. Notably, Ukrainian coke prices detached from world export levels and fell to levels close to domestic Russian and Chinese prices. This costs decrease is hugely positive for Ukrainian steelmakers. Meanwhile, even as coke fell to USD 332 per mt, coke makers continue to preserve some margins by depressing coal prices. Nevertheless, even though shares of coke makers are being traded at record-cheap levels on T12M multiples, the outlook is uncertain due to production volume decreases, which are expected to accelerate.

The Open JSC ToshkentDonMahsulot (TDM) has been officially listed on the Tashkent Stock Exchange under category “B”. The decision was approved on September 22, 2008, bringing the total of all listed shares to 19. Among the other listed companies are 17 banks (category “A”) and one insurance company. This is the first representative of the food production sector in the official listing and in the entire production sector. A key requirement for listed companies is the disclosure of information, which will make the TDM more transparent and investor-friendly.

Earlier this week the ESGroup hosted a conference with all the major players in the agricultural sector of Ukraine’s economy. Among the participants were Anatoly Kinakh, the President of the Ukrainian Union of Manufacturers and Entrepreneurs, and Yuriy Luzana, the Deputy Minister of Agriculture.

At the October 25 AGM, Azovstal’s shareholders will decide on dividends for 2002–2007 (maximum USD 0.264 per share, 124% yield). Azovstal has got some cash and, more importantly, the balls — the grinding ones, for supplies of which, together with other steel products, Azovstal can collect from its currently highly profitable ore-mining Metinvest Group partners. The wild card is Azovstal’s huge accounts receivable due from the Group’s traders (USD 0.211 per share, 100% yield), which are much less liquid assets under the current difficult conditions on the steel markets. Whether Metinvest has got the balls to actually declare dividends, and how much, remain open questions for ballsy investors to bet on.

The Ukrainian new car market is demonstrating a drop in sales for the second month in a row. The main reason is a decrease in the dispersal of auto loans since May 2008. We downgrade our forecast for the sector’s market growth for 2008 to 14%; however, we retain our estimates for LUAZ car production at the 90 thsd level. The current liquidity crunch that has already reached Ukraine has led us to increase the WACC in the DCF model. Also taking into account details of an additional share issuance of a 33% stake, which is expected this autumn, we downgrade our 12M Target Price for LUAZ to USD 0.284 per share (USD 0.31 before additional share issuance) and retain our recommendation to BUY shares in the Bogdan Automobile Plant.

After consultations with major political forces on Wednesday, October 8, 2008, President of Ukraine Viktor Yuschenko dissolved the Ukrainian Parliament. The appropriate TV message was broadcasted late night on October 8, 2008 and today, the decree appeared on the President’s website.

На прошлой неделе Холдинг Астарта объявила о своих стратегических планах на 2008-2012. Компания собирается ввести в эксплуатацию новый элеватор до конца 2011 года и инвестировать в общей сложности 50-60 млн. долл. в модернизацию сахарных заводов. Кроме того, Астарта планирует увеличить производство сахара на 29-42% до 200-220 тыс. тонн в 2008 году и расширить свой земельный банк с нынешнего 160 тыс. га до 180-185 тыс. га в 2009 году. Указанные цифры соответствуют нашим ожиданиям, поэтому наши основные предположения остаются неизменными. Тем не менее, мы понижаем нашу целевую цену из-за использование для акций украинских компаний в моделях DCF более высокой risk free rate - 8,6% (ранее 6,1%). Наша новая целевая цена составляет 25.2 USD с потенциалом роста 165,3%. Мы подтверждаем нашу рекомендацию ПОКУПАТЬ.

Ukraine’s Parliament has finished vacations and commenced its new session on Tuesday, September 2. The day finished with the collapse of the majority coalition and an escalation of the conflict between President Viktor Yuschenko, goaded into the confrontation by the Head of his Administration, Viktor Baloga, and Prime Minister, Yuliya Tymoshenko as Tymoshenko used the opposition Party of Regions, led by Viktor Yanukovych, to pass several legislative amendments limiting the President’s power.