Monday, December 5, 2011

RusHydro : Tapping Russia's growth

When looking for an emerging markets stock, utilities reflect the economic health of the country with less volatility than media, tech, commodities, or financials. The Russian index is dominated currently by mining or metals companies. In order to support both industries, the power infrastructure must be developed. This is what led the author to RusHydro.

RusHydro is the worlds second largest hydropower generator, and the largest successor of the former Russian monopoly broken up in 1993. The company was recently privatized by the Russian government (which still owns over 50% of the company) and will complete the privatization of all entities over the next few years.

The company is currently enjoying high paced growth of revenues and earnings. RusHydro has plants all over Russia, and supports many of the fast growing mining interests power needs. But in the future RusHydro also has potential to export it's energy product to China via it's Siberian interests.

"Sayano-Shushenskaya is the fourth-largest hydropower plant in the world by average power generation, with an effective capacity of 3.5 gigawatts and installed capacity of about 6.7 gigawatts. It accounts for roughly a quarter of RusHydro's total capacity, and damages could cost the company about $350 million, analysts estimate."

As recently as 2009 RusHydro faced a devestating setback when the Sayano-Shushenskaya hydroplant blew up and destroyed 9 of the 10 turbines of the facility.

"OAO Power Machines, which made Sayano-Shushenakaya’s turbines, said it’s ready to make at least six units for the station in 2011. It wasn’t asked to service the turbines since 1993 after installing the first and second units in 1978 and 1979, the Moscow-based company said in an e-mailed statement. "

Overall there is tremendous long term upside to RusHydro and major investment banks are taking notice.

"ADRs of OAO RusHydro, Russia’s largest renewable energy producer, jumped 3.4 percent to $3.97, a three-week high, after JPMorgan Chase & Co. reiterated its “overweight” recommendation on the stock while cutting the price target on its Moscow-traded shares by 30 percent to 1.54 rubles. RusHydro’s Micex shares gained 2 percent to 1.22 rubles, or 4 cents. One ADR equals 100 ordinary shares."

The author purchased RSHYY.PK ADRs at $3.42