On July 23 Saturn Gas Turbines, the Saturn Research & Production Company's fully-owned subsidiary, signed a cooperation deal with the Communal Investments and Technologies Company, under which the two companies are to join forces in the development and implementation of energy production projects. The first joint project entails the construction of a gas turbine co-generation power plant in the town of Kirovsk in the Leningrad region. Under this project, Saturn Gas Turbines will deliver two six-megawatt gas-turbine units and two waste-water boilers.
In our opinion, the conclusion of the long-term contract for the delivery of power generating equipment will have a beneficial impact on the company's financial indicators. The fulfillment of large-scale programs in Russia for upgrades of electricity generating capacity is fuelling demand for power generation equipment and pushing prices up. As a result, profit margins on the relevant production are likely to expand, making it possible for Saturn to improve its consolidated financial indices.
We estimate the fair value of one common share in the Saturn Research & Production Company at USD 0.132 as of year-end 2009, which implies an upside potential of 76% to the current stock valuations and corresponds to a BUY recommendation.
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