OREANDA-NEWS. September 29, 2010. The Federal Tariff Service partially disclosed tariffs for FGC and MRSKs, which are operating under the RAB-based tariff system. FTS gave tariffs for a 5-year period but not all of them were specified. For MRSKs, FTS stated a return on newly invested capital of 12% for 2010-2012 and 11% for 2013; the return on old capital remained unchanged for 2010, 2011 and 2012 at 6%, 9% and 12% respectively. For 2013 and 2014 the stated return amounts to 12% and 11%, respectively. Previous stated tariff growth rates in 2010-2012 for FGC will not be decreased, the report said; these rates will amount to 51%, 31% and 25% respectively. Only 2013 and 2014 tariff growth rates are still under review, reported the press-centre of OTKRITIE Financial Corporation.

View: We see this news as neutral for MRSKs and for MRSK Holding as the return on new and old capital comes in line with what we and the market expected. However, this news seems to be marginally positive for FGC as it eliminates the risks of freezing the RAB reform as tariff growth rates remain high. Furthermore, FGC approved its previous capex plan, amounting to RUB950bn – a huge sum, but one that was expected. We await detailed information for a precise review of our models.

Valuation: Holding MRSK and FGC trade at an EV/RAB multiple of 0.43x and 0.7x respectively vs foreign peers average of 1.3x and 1x, respectively.

Action: We view the news neutral for the distribution sector and marginally positive for FGC and wait for details to review models.