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MARKETS OVERVIEW:
Stocks down for the day, up for the week. Hryvnia retreats, but ends the week up
On Friday, Ukrainian stocks declined despite positive trends on European and US markets. At the close of trading, at 5 PM Kyiv time, the DJ Stoxx 600 was up 1.2%, trading at 247.5 points, while both the DJIA and S&P 500 rose by 0.5%. By the end of trading, Ukrnafta lost 6.4% and, together with the machinery sector (TATM: down 2.5%; LTPL: down 3.51%), dragged the indices down. The UX index finished at 1,672 points, losing 0.6% for the day and gaining 4.5% for the week. The trade volume on the UX reached healthy UAH 39.8m. PFTS index slipped 0.6% Friday to close at 633.9 points. However, it gained 3.3% for the week. The trade volume on the PFTS amounted to average UAH 12m.
Denis Belov
After a strong appreciation movement on Thursday, the hryvnia slightly retreated on Friday. The Interbank FX Market closed at UAH/USD 8.0019-8.0280, with the hryvnia losing 0.25% against the dollar. The hryvnia finished the week with a 0.7% advance against the dollar, while in January it still devalued by an overall 0.4%. The National Bank held a target auction for individual borrowers on Friday, selling CHF 0.6m to five commercial banks at UAH/CHF 7.65.
Oleksiy Blinov
ECONOMICS & POLITICS
Consumer confidence improves in December
According to a joint survey by GfK Ukraine and the International Centre for Policy Studies (ICPS), the Consumer Confidence Index (CCI) in Ukraine grew by 7.9 points m/m to reach 73.5 in December’09.
Astrum’s perspective: This improvement means that people are re-assessing their well-being and feel that the crisis is wearing off. Moreover, the poll was conducted after a month-long stabilization run for the hryvnia at the UAH/USD 8 mark. At the same time, consumer confidence poll results are also influenced by the pre-electoral political environment. With part of the polled people pinning their positive expectations on their preferred candidates, they are raising their economic expectations about the next 12 months. Thus, the Index of Economic Expectations (IEE) grew by 6.8 points m/m, reaching 78.7 in December’09, the highest since the pre-crisis level of 94.3 in August’08. The Index of Current Standing (ICS), which gauges Ukrainians’ self-evaluation of their current well-being, increased by 9.6 points m/m to reach 65.8. However, these levels are still very low and point to prevailing pessimism on the Ukrainian market as indexes range from 0 to 200, where 0 means ideal pessimism and 200 is related to ideal optimism. Expectations about prices remain strongly negative: 18 out of 20 Ukrainians expect that price growth will accelerate in the next 12 months. At the same time, only 12 out of 20 Ukrainians expect that unemployment will increase in a year’s time, while just a month ago, the respective figure was 14 out of 20. We treat this as the reaction of people who are already witnessing signs of recovery in output at Ukrainian enterprises. This supports our view that unemployment is now at its peak.
Oleksiy Blinov
FIXED INCOME
SIA Boryspil to restructure its bonds
According to media reports, SIA Boryspil has selected Sparta Capital LLC and Eurobank as advisors for the restructuring of its domestic bonds for a total amount of UAH 300m. The date of the bonds’ redemption is scheduled for April 19,2010.
Astrum’s perspective: We consider this news as MODERATELY NEGATIVE. We considered SIA Boryspil among the most reliable issuers on the Ukrainian domestic market due to its quasi-sovereign status, high level of solvency and strategic importance in relation to the Euro-2012 preparation program. According to Boryspil’s 9M09 results, there were more than UAH 450m in cash on the Airport’s accounts, which is 50% more than the value of the bond issue itself. In 2009, we expect that Boryspil’s EBITDA will exceed UAH 600m, which is twice the amount of the Company’s net debt. The restructuring terms have not been published yet, but we expect that they will demonstrate maximum loyalty to investors due to the high level of the issuer’s solvency. In our view, an optimal restructuring arrangement would involve a new issue of bonds for the bigger part of the current issue, in addition to a partial redemption. This would allow the issue to remain one of the most liquid on the market, with potential growth in demand during the market’s impending recovery in 2H10. We expect that the coupon rate will increase to 18%-20% from current 10%. As a result, we reсommend investors to not sell Boryspil bonds at a significant discount and, instead, wait for the restructuring terms, which should be made public in the near future and help determine the fair price of the bond.
Sergey Fursa
COMPANIES & INDUSTRIES
Azovmash to deliver 3 airport refuelers to Vietnam
According to a press release by Azovmash, the Company has reached an agreement on the delivery of three AT2-22 airport refuelers to Vietnam in 2010. The tank capacity of one AT2-22 refueler is equal to 22 cubic meters.
Astrum’s perspective: Azovmash is effectively a trading house for Azovzagalmash (AZGM: U/R) and Mariupol Heavy Machinery (MZVM: U/R). Within Azovmash, Azovzagalmash will most likely manufacture the refuelers. At the same time, this contract's potential impact on Azovzagalmash's top and bottom lines are currently unclear.
Igor Bilyk
Kyivenergo to sue Kyiv Administration for UAH 1.4bn
According to Kyivenergo's (KIEN: N/R) CEO Eduard Sokolovskyi, the Company plans on suing the Kyiv City Administration for UAH 1.4bln. This is the amount estimated for reimbursement of the difference in cost between production and the final end-user price of heat supplied by the Company in 2009 and 2010.
Astrum’s perspective: KIEN’s cost of production for heat is consistently higher than the heating price set by the Kyiv City Administration, which, since 2000, has regularly failed to reimburse the difference, that was the reason for KIEN's gross and net losses. In 3Q09, the Kyiv City Administration made a one-time compensation payment of over 1.4bln to Kyivenergo for the difference in the cost of production and the price of the heat supplied by the Company. As a result, KIEN reported UAH 530m in net income for 3Q09. However, according to Kyivenergo's CFO Mikhail Utkin, all of this money went towards natural gas payments. In the meantime, the Company continued to generate over UAH 90m, on average, in gross losses monthly in the summer period and a monthly gross loss of over UAH 130m in the 2009 winter period. As of January'10, Kyiv City’s debt to Kyivenergo amounted to UAH 1.4bln. We believe that KIEN's initiative with respect to receiving compensation from the Kyiv City Administration is POSITIVE. Nevertheless, we expect that Kyivenergo’s gross losses will continue in 1H10 due to the City Administration’s latest decision to maintain low heating tariffs until 2Q10.
Yan Lipchinsky
MHP issues upbeat trading update for 2009
As of January 1, 2010, MHP S.A. (MHPC LI, BUY) issued its preliminary operational results for 4Q09 and FY09. Poultry production volumes in 4Q09 totalled 80 thd tonnes, which corresponds to 100% of MHP’s capacity utilization level. In 2009, the Company’s poultry sales grew by 26.9% to 272 thd tonnes, primarily due to the launch of phase two of the Myronivka Poultry Farm. As a result, MHP utilized virtually 100% of its capacity. In 2009, MHP produced 140.4 thd tonnes of sunflower oil (+50% y/y) as a result of the launch of its new sunflower crushing plant in September’09. In the grain cultivation segment, MHP enjoyed a yield that is 40-120% above the Ukraine average.
Astrum’s perspective: The update is in line with our expectations and market consensus, thus it is NEUTRAL for the stock in the short term. Given the strong operational performance in 4Q09 and FY09, we reiterate our BUY recommendation for the stock. We expect that MHP’s operational results in 2010 will remain on the growth track: poultry output volumes should rise 17% to 320 thd tonnes. Profit margins should also expand further via the extension of MHP’s value chain with more profitable convenience foods, sausage and related products segments.
Dmytro Ushenko
To receive additional information, please contact:
Yuval Shavit
Communications Director
Astrum Investment Management
Mob.: +380 (67) 236 46 73
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