EOS RUSSIA: Exposure to RAB at a 30% Discount

EOS is a Stockholm-listed limited lifetime investment company which invests in the Russian utilities sector.
Discount to NAV recently widened. EOS’s shares are currently trading at a 30% discount to its NAV value, which is almost double its historical average value.
Discount to NAV hardly seems justified. Given that over 90% of EOS’s holdings have market quotes, the superior liquidity of its shares relative to the majority of the underlying companies should warrant a premium rather than a discount relative to NAV, in our view.
Electricity distribution stocks are the core investment. Half of the company’s assets are invested in electricity distribution companies (MRSKs), which offer significant potential upside, on our estimates. Based on our official target prices for the MRSKs and RTS mid-market prices for the rest of EOS’s holdings, we calculate an indicative 12M target price for EOS of SEK76.2 per share. This implies approximately 68% potential upside.
MRSKs’ transition to RAB a strong short-term driver.  We view the upcoming transition to RAB regulation in 2011 as a strong catalyst for distribution companies, which account for the largest share of EOS’s portfolio.

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