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. Last Updated: 07/27/2016

UES Stock Sizzles With 34.9% Surge

Power stocks are the flavor of the month on the Russian Trading System, with Unified Energy Systems leading the pack by skyrocketing 34.9 percent in the past two weeks.

UES ordinary shares closed up 10 percent at 13-month highs of $0.1377 on Tuesday, continuing a climb fueled by an overall rally on the Russian stock market and reforms at UES itself.

Other outperformers are energos Lenenergo, which is up 33.5 percent, and Mosenergo, up 23.8 percent.

The RTS Index has jumped 59.5 percent since the start of the year, while UES ordinary shares have risen by 53 percent and preferred shares by 143.2 percent.

At the current share price of $0.13, UES' capitalization is roughly $5.38 billion. But analysts who remember UES hitting $0.21 a share at the start of 2000 agree that the company is worth much more and should see further growth in its share price.

"I would not be surprised if we see UES shares reaching $0.20 by the end of this year," said James Fenkner, chief strategist at the Troika Dialog brokerage.

According to Renaissance Capital, the UES stock upside potential is 73 percent from the current price, with the target price fixed at $0.22.

Stock watchers said the market is impressed by UES' financial results for the first half of 2001 and its adoption of a corporate governance code. Investors are also pleased with a recent announcement by the UES board that the company will form a state-owned power grid company by Feb. 1, 2002, as part of its moves to reshape the state power sector. According to the plan, shareholders will receive shares in the grid company on a pro-rata basis in 2004 when UES is to be broken up.

While the skies appear blue above UES these days, some investors are worried what tomorrow's winds may bring.

"Those investors who were recently actively buying into UES don't know anything about the restructuring plans and have no idea how the company will look in one to four years," said Alexander Branis, head of Prosperity Capital Management, a minority UES investor and a member of the Kress commission, which wrote a revamp plan for UES that was ultimately rejected.

"They just want to participate in the positive development of the Russian economy, and they have to choose from among the companies that are available," Branis said. "UES is one of the most liquid stocks, so it is the best choice for them in the short term."

David Herne, head of Brunswick Capital Management and a UES board member, disagreed.

"We see a lot of buying from abroad. Those investors who are doing that believe that there is a value in the company and it is not all hot money," Herne said. "The company has extraordinary value, which is much greater than its present market cap."

However, he conceded that the longer-term outlook for UES remained unclear.

"We don't know what is going to happen with the company over the next three years," he said.

Branis said, "All the questions that were worrying investors some time ago remain. The market still does not know what UES shareholders will get in the end of the restructuring process."

Herne said he would do his best to make sure that shareholders retain the value of the assets in the process of restructuring.

Also, Herne said, he would try to "make sure that companies that result from UES are viable and interesting for investors, both portfolio and strategic."

"We don't want to end up with either huge unmanageable monopolies or tiny little companies that are too small and not interesting for investors," he said.

"Investor interests are certainly not the first thing on the mind of UES management, as they first of all need to keep everyone warm and second, create an efficient company as a result of reform process," he added. "So I have to remind them from time to time."

How the Blue Chips Are Doing

Nov. 2 ($)Nov. 9 ($)Change (%)Volume $mln
Surgutneftegaz pref0.15180.167010.051.53
UES pref0.06600.080321.592.64
RTS Index203.52225.0410.57109.39
Source: Troika Dialog