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Market Comment
PFTS took lost 1.37% to close at 379 points. Utilities put up a strong showing, with Zakhidenergo (ZAEN: BUY) and Kyivenergo (KIEN: HOLD) accounting for more than a half of all trading volume, rising 0.34% and 6.47%, respectively. Financials, as expected, lost some ground. Ukrsotsbank (USCB: BUY) and Raiffeisen Bank Aval (BAVL: BUY) shed 3.23% and 0.24%. Following news that the US House of Representatives voted down the USD 700 bln economic stabilization package, equity markets have plunged: the S&P 500 was 8.8% lower, its largest decline since 1987. The Vix volatility index closed at a record high. The FTSE 100 declined over 5% and Asian markets this morning have also opened on a sour note. Overnight the US Federal Reserve and central banks around the world moved to inject an extra USD 630 bln into the financial system in an attempt to ease market stress. We expect the PFTS to head south today, as no positive catalyst is likely to emerge today either domestically or from abroad. As of 11:00 Kyiv time today, 2% of shares were up and 71% of shares were down.
Utilities
Kyivenergo’s heating segment to stop bringing in losses? The Kyiv City State Administration is drafting plans to increase heating and water supply tariffs by 1.4-10.1 times for non-residential consumers. Cold water tariffs, based on the plan, would rise by 1.4-10 times depending on category; hot water tariffs would increase by 1.6-10.1 times and heating tariffs would be upgraded by 1.5-9.4 times. Corporate and state consumers will be slotted into 20 categories according to the profitability of their business, and assigned a tariff accordingly. Tariffs for residential consumers will no be altered, according to the draft. Alexander Paraschiy: The key beneficiaries of the tariff increase (if approved by the Kyiv City Council) will be Kyivenergo (KIEN: HOLD), the main supplier of heat to the city of Kyiv, and Kyivvodokanal (KVKL: N/R), the water and sewage company. We expect tariffs to be approved by the end of October 2008, and they will allow Kyivenergo’s heating segment to breakeven in 2009 (in 2008, the company expects about USD 120 mln in losses from heat supply). Even if new tariffs do not cover Kyivenergo’s heating costs in full, the gap in tariffs will be easily covered by the Kyiv city budget in 2009.
Oil & Gas
Cadogan’s Pirkovske and Zagoryanske licenses upheld by courts. According to an announcement from Cadogan Petroleum (CAD LN: N/R), yesterday the Kharkiv Administrative Court of Appeals upheld the company’s rights to the licenses for the Pirkovske and Zagoryanske deposits. The court, in its ruling, recognized the appeal filed by Cadogan and cancelled lower decisions by the Poltava Regional Economic Court of June 17, 2008 that declared its licenses illegal and granted licenses to Nadra of Ukraine and Poltavanaftogazgeology. Earlier in the day yesterday, Cadogan announced that the Poltava Regional Administrative Court ruled on September 26 to grant a permanent injunction against the nullification of Cadogan’s licenses. Both rulings are subject to appeal. Yesterday in trading in London, Cadogan shares rose 11.9% to 103 pence.
Machine Building
Ukraine restores antidumping duty on switch imports from Russia. According to Ukrainian Interagency Commission on International Trade (ICIT), on September 25 it restored a 59.4% antidumping duty on switch imports from Russia, which was cancelled in July (see our news of July 10). The new imposition of duties follows an investigation initiated by the biggest Ukrainian switch producer, Dnipropetrovsk Switch (DSTR: N/R). Inna Perepelytsya: The new regulations can only benefit Dnipropetrovsk Switch, which already this year has shown impressive sales growth of 60.7% yoy in 1H08 08Hto USD 46.4 mln and its net income rose 25.7% yoy to USD 5.7 mln.
Real Estate
KDD Group posts net profit of USD 70.6 mln in 1H08. Kyiv Donbas Development Group (KDDG: N/R) announced today its 1H08 financial results: the group's net profit amounted to USD 70.6 mln; total assets grew by 13.1% yoy to USD 954.0 mln; and total equity rose by 15.3% yoy to USD 709.0 mln.
Agriculture
Ukraine exports 5.6 mln mt of grain as of September 23. Ukraine’s Agriculture Minister Yuri Melnik said yesterday that since the beginning of the 2008/2009 marketing year (which started July 1), Ukraine has exported 5.6 mln mt of grain, including 2.6 mln mt of wheat. To compare, in 2007/2008 MY Ukraine exported 3.7 mln mt. The Ministry’s full year forecast for grain exports is 22.5 mln mt.
Food
Kernel Group plans to increase sunflower oil production 27% yoy in 2009. According to Kernel Group (KER PW: N/R), the company is targeting the production of 13.1 dal of bottled sunflower oil (+27% yoy) in 2009. Kernel said it expects to increase its land bank by 28% yoy to 100 ths ha in 2009 (and further to 250 ths ha in 2010). In addition, the company plans to up grain harvesting by 270% yoy to 255 ths mt in 2009, with average expected yield of 2.5 mt/ha.
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