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Last week Comstar-UTS published its 1H 2008 financial results.

Company’s report demonstrated negative trends of efficiency dynamics, due to higher expenses growth rates over income growth rates. This trend especially evident over 1H period. Among the reasons of higher growth rates of expenses are: decreased tariffs of MGTS (Comstar’s major subsidiary) and also Comstar’s aggressive activities in broadband market segment.

1H 2008 results of the company have met our expectations in general and in accordance to this, we just slightly changed our income and expenses forecasts. The main changes are referred to the fact that Access Industries, implementing put-option, sold 46 mn of shares to Comstar, as a part of the blocking stake purchase deal of Svyazinvest. According to our estimations, strike-price of (weighted average price of LSE per 90 days) the given option forms about 10 USD per Comstar’s share, i.e. the whole stake costs – about 462 mn USD. During the deal, the cash assets will be reduced by the same amount, whereas the company receives treasury stocks and free-float decreases on the same value.

Regarding the other estimation factor: the change of fair price of Svyazinvest’s blocking stake. The new estimation determines prices fall of all subsidiaries of Svyazinvest. Our previous estimation of the blocking stake formed 1.8 bn USD; today it totals 1.6 bn USD.

Taking into account all described factors, we decreased fair price of share/GDR of Comstar from 13.479 USD to 12.693 USD. In spite of the fall of quotes, company’s shares have reached all time lowest, having a significant growth potential to be achieved the fair value. We confirm our “BUY” recommendation on Comstar’s securities.

Comstar-UTS: Target review - September 12, 2008 (PDF Stock Report)

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