Finam assesses the investment appeal of Baltic Plant stocks
Finam Investment Company has assigned a BUY recommendation to the shares of Baltic Plant (Baltiysky Zavod), setting the fair price at USD 164.00. Upside potential of the stock is estimated at 168%. The investment company's analysts believe that the market cap growth drivers for the shipbuilder are a solid order book and also the option of selling land assets in downtown Saint Petersburg.
Only recently, the situation in the domestic shipbuilding industry that was in the throes of a crisis for a long period has begun to improve, which, as Finam analysts believe, is due to three reasons. First, funds allocated from the federal budget to the national defense are constantly on the rise. Second, thanks to the promotion of credit and leasing schemes private businesses now have a real opportunity to place orders to produce new vessels. Third, demand for civil aircraft has prompted Russian shipbuilders to learn how to manufacture tankers and merchant ships.
The revival of the Russian economy has breathed new life into shipbuilding companies that managed to renew their fixed assets earlier. Baltic Plant is one such business. "An additional growth driver in the shipbuilding industry is the state's keener interest in rolling out the shipbuilding sector that will result in state orders, low-interest loans for corporate development and also some tax benefits" – Finam's desk note pointed out.
The desk note points out that Baltic Plant is one of Russia's biggest privately owned shipyards. Given the current status of the industry the company has a good order book. All other things being equal, the company is constructing two new-class icebreakers and in this segment the company has no domestic rivals. The expansion of the Russian shipbuilding sector and the state's support to Russian shipyards allow Baltic Plant to bank on seeing more state orders. "The positive factor for the company's minority shareholders is the fact that the state holds the "golden" share, which allows it to veto decisions that might damage the company's core activities. In addition, this factor prevents any SPO initiatives and further consolidation of the company's securities, since control over the company and decisions adopted by its governing bodies on the part of the state, as its shareholder, will be retained in any case" – Finam analyst Konstantin Romanov noted.
Alongside this, Baltic Plant encounters problems typical for the industry: irregular order placement and also the rapidly rising costs which are not recorded when primary vessel construction agreements are signed. "What's more, the company is exposed to some specific risks: state authorities could place orders primarily on the books of the shipyards that make up United Shipbuilding Corporation, thereby depriving Baltic Plant of production orders. But even taking into account this scenario, which is unlikely, it will eventually see no losses – if no orders are placed, a project will get under way to relocate the company's production facilities to Northern Shipyard and after this the sale of the land in downtown Saint Petersburg will guarantee substantial income" – Romanov thinks.
To calculate the fair price of the shipbuilder's stocks, Finam Investment Company's equity research department performed a valuation using peer analysis, involving financial multiples of shipbuilding concerns from both developing and developed economies. Based on the valuation, Finam Investment Company assigned a BUY recommendation to Baltic Plant shares, with a fair price of USD 164 and 168% upside.
Only recently, the situation in the domestic shipbuilding industry that was in the throes of a crisis for a long period has begun to improve, which, as Finam analysts believe, is due to three reasons. First, funds allocated from the federal budget to the national defense are constantly on the rise. Second, thanks to the promotion of credit and leasing schemes private businesses now have a real opportunity to place orders to produce new vessels. Third, demand for civil aircraft has prompted Russian shipbuilders to learn how to manufacture tankers and merchant ships.
The revival of the Russian economy has breathed new life into shipbuilding companies that managed to renew their fixed assets earlier. Baltic Plant is one such business. "An additional growth driver in the shipbuilding industry is the state's keener interest in rolling out the shipbuilding sector that will result in state orders, low-interest loans for corporate development and also some tax benefits" – Finam's desk note pointed out.
The desk note points out that Baltic Plant is one of Russia's biggest privately owned shipyards. Given the current status of the industry the company has a good order book. All other things being equal, the company is constructing two new-class icebreakers and in this segment the company has no domestic rivals. The expansion of the Russian shipbuilding sector and the state's support to Russian shipyards allow Baltic Plant to bank on seeing more state orders. "The positive factor for the company's minority shareholders is the fact that the state holds the "golden" share, which allows it to veto decisions that might damage the company's core activities. In addition, this factor prevents any SPO initiatives and further consolidation of the company's securities, since control over the company and decisions adopted by its governing bodies on the part of the state, as its shareholder, will be retained in any case" – Finam analyst Konstantin Romanov noted.
Alongside this, Baltic Plant encounters problems typical for the industry: irregular order placement and also the rapidly rising costs which are not recorded when primary vessel construction agreements are signed. "What's more, the company is exposed to some specific risks: state authorities could place orders primarily on the books of the shipyards that make up United Shipbuilding Corporation, thereby depriving Baltic Plant of production orders. But even taking into account this scenario, which is unlikely, it will eventually see no losses – if no orders are placed, a project will get under way to relocate the company's production facilities to Northern Shipyard and after this the sale of the land in downtown Saint Petersburg will guarantee substantial income" – Romanov thinks.
To calculate the fair price of the shipbuilder's stocks, Finam Investment Company's equity research department performed a valuation using peer analysis, involving financial multiples of shipbuilding concerns from both developing and developed economies. Based on the valuation, Finam Investment Company assigned a BUY recommendation to Baltic Plant shares, with a fair price of USD 164 and 168% upside.