OREANDA-NEWS. July 28, 2009. Event: FAS for the Moscow region (oblast) suspects four dairy producers of price collusion, although the allegations have yet to be proved, Vedomosti reported. The companies suspected-- WBD, Danone, Campina and Ehrmann-- process 90% of all the milk in the region. In December 2008, all four simultaneously cut their raw milk purchasing prices by RUB4-5 per/liter (~25%), which moves the price below the efficient production level. In addition, the companies refused to purchase milk from any new raw milk producers, reported the press-centre of OTKRITIE FC.

View: For now, we view this as neutral for WBD, since price collusion has yet to be proved. Raw milk supply is high this year, which is why milk producers are willing to reduce their selling prices and make concessions to the largest dairy producers. The current average raw milk prices are 20-30% lower than those of six months ago, and c15% lower than a year ago.

Valuation: WBD trades at 11.2x EV/EBITDA 09E, which implies a 5% premium to EM peers.

Action: Our target price for WBD is US49.2 and we reiterate our HOLD rating.