Metals and Mining
March 01, 2011
Avdyivka Coke: Transfer Pricing Squeezes Upside - Avdyivka Coke saw its capacity load rise from 69% in 1H10 to 86% in 2H10 and 99% in January 2011 thanks to a strong order book secured by its parent group Metinvest. However, Avdyivka reported weak 3Q10 financials due at least in part to the application of transfer pricing schemes, and we expect the 4Q10 financials to reflect a continuation of this pattern. Our revised DCF model, which incorporates the risk of transfer pricing, yields a fair value for the AVDK stock of USD 3.29 (vs. 3.93 previously), implying an upside potential of 65% and a BUY rating.
