Russian Daily Monitor

North-West Telecom posts 1H05 IFRS results

North-West Telecom posted strong 1H05 results under IFRS which exceeded
our expectations in terms of operating efficiency improvement. However,
the company looks fairly valued at the moment and we do not see
significant upside potential in that stock.
North-West Telecom
,s operating margin stood at 18% in 1H05 compared with
10% in 2004, and EBITDA margin soared from 23% to 29%. The company
,s net
margin was 10%, making it one of the sector
,s highest. Because of a bond
placement in March 2005, the company debt increased by roughly USD 50 mn
to hit USD 300 mn. Meanwhile, we expect to see debt decline in FY2005 as
the company accumulates cash to pay off previous borrowings.

Money market

The local money market encountered its regular end-of-the-month liquidity
squeeze, suggesting a stronger rouble position, however, the euro-dollar
pair moves continue to dominate on other factors as regard the rouble
value. The European currency had slipped to USD 1.206 by Monday morning,
lifting the dollar close to RUB 28.5.
In the coming days we expect the rouble to float around 28.5 with likely
swings of 10-20 kopecks reflecting the string of interesting U.S. data
releases and reviving speculation on ECB
,s interest rate hikes. U.S. data
on September inflation is due for release today, with core inflation
consensus at 1.9%. Any noticeable upside divergence from the consensus
mark would be quite bullish for the dollar.

Eurobonds

Russian Eurobonds should continue to track benchmarks, retaining the
spread at 120-130 bps. The long-term U.S. Treasuries started their trade
on Monday from a seven-month low ahead of core-inflation data for
September and partly reflecting the unexpectedly strong third-quarter GDP.
As this week
,s data, accompanied by the FOMC
,s meeting on November 1, seem
to provide more evidence of firm economic expansion and inflation risks,
we expect the benchmarks to remain low.
U.S. economic developments currently point to continuing interest rate
hikes for at least the next three meetings of the FOMC, thus promising no
surprises from tomorrow
,s decision on fed funds target rate. However,
attention should be focused on the commentary.
On Friday Russia
,30 yields dropped 5 bps to hit 5.75%, while 10-year UST
clocked in at 4.57%. The EMBI+ Russia index tightened 4 bps to reach 118
bps.

Equity market

The Russian equity market should continue to see support from emerging
equity markets which were in good shape overnight. However, volatility
should come to the system as we digest Fed Chairman Alan Greenspan\'s
comments on Tuesday. Meanwhile, some buoyancy should be added by news that
amendments that would open the way for the removal of Gazprom
,s ring-fence
were brought before the State Duma.
The benchmark RTS index added 1.37% on Friday to close at 910.75, with all
Russian heavyweights soaring 1-3%. The domestic optimism was supported in
New-York, with all Russian ADRs closing in the black.