OREANDA-NEWS. October 11, 2010. The Board of Directors of Bashkirenergo [N/R] could approve the spin-off of grid assets from the company at its 24 December meeting, reported the press-centre of OTKRITIE Financial Corporation.

View: We see this spin-off as a positive and important development for the company and a trigger for its shares, as Bashkirenergo’s grids are effectively a 'free lunch' for the minority shareholders (there are no grids in OGKs or TGKs).

However, with an EV/installed capacity multiple (only generating installed capacity) of USD 540/kW, Bashkirenergo already looks expensive compared to the USD 270/kW average for OGKs and TGKs. Meanwhile, the stock price for Bashkirenergo climbed 50% in September. We estimate the value of its grids at USD 750m, according to the mixed average of the EV/Output multiple for Russian transmission and that of distribution peers (USD 40/MWh). Hence, without the grids Bashkirenergo effectively trades at USD 380/kW. We believe at this juncture that the upside potential in Bashkirenergo stock is limited.

Valuation: Bashkirenergo trades at an EV/Installed capacity multiple of USD 380/kW (without grid assets) versus the thermal generation average of USD 270/kW.

Action: We view this news as fundamentally positive for the company, but we see it as neutral in terms of a catalyst for stock price because we believe that it has already been priced in by the market.