COMPARATIVE VALUATION

We evaluate Mostotrest on the basis of EV/EBITDA and P/E ratios. In order to account for the specific structure of the company’s business we form a universe of peers which is divided into 3 separate groups. Each group is comprised of international infrastructure construction companies whose core activities largely overlap with principal activities carried out by one of the three corporate segments of Mostotrest (Table 8).

The median EV/EBITDA and P/E ratios are derived for each group. The multiples are then weighted by the estimated proportion of revenues each corporate segment contributes to Mostotrest’s total in order to arrive at the ultimate fair multiples used to place value on the company as a whole (Table 9).

This methodology, in our view, allows to better evaluate Mostotrest as there are no perfect comparables that can be used as a benchmark straight away.

We would like to also emphasize that the listed Russian infrastructure constructors are not included into the peers’ universe due to their low free float levels, unsystematic trades with the shares, different accounting principles and the consequent lack of reliable financial data necessary to calculate their trading multiples. For the list of comparables see Appendix D.

As result of the analysis we arrive at EV/EBITDA of 5.4x and P/E of 12.8x, which, applied to appropriate financial metrics, translates into multiples-based price per share of RUB 267 and RUB 226 respectively (Table 10).

Table 10. Multiples-based target price EV/EBITDA 5.4 P/E 12.8 2013 EBITDA, mn 12,608 2012 Net income 5,007 Enterprise value, mn 67,701 Less: Net adjustments to EV (7,648) Value of equity 63,885 Value of equity 75,348 Shares outstanding (mn)   Shares outstanding (mn)   EV based price, RUB   P/E based price, RUB               Source: Consensus estimates; A-Team analysis