OREANDA-NEWS. August 02, 2010. Russia's Federal Tariff Service (FTS) has increased the oil transportation tariff for oil pipeline monopoly Transneft by 3.3% on average from 1 August, and by 9.9% effective 1 December, Interfax reported. The FTS last increased Transneft's tariffs (by 15.9%) on 1 January 2010. The news was not unexpected since Vedomosti had already reported on possible tariff indexing. Also, current proposal assumes the absence of charge indexation in 2011. This tariff hikes are intended to fund projects such as BPS-2 and the second ESPO pipeline, reported the press-centre of OTKRITIE Financial Corporation.

View: We believe that this is both positive and expected news for Transneft. This transportation tariff increase implies a 19.47% boost in Transneft’s revenue in 2010 to approximately USD14bn. Next year we estimate revenue growth of 10.1%. We do not anticipate strong market movement on this news, as share prices are now primarily triggered by rumors of the potential privatization of Thansneft in next three years. Transneft shares climbed 11.6% yesterday on this factor.

Valuation and Action: Transneft trades on a 2010 EV/EBITDA of 3.3x. We reiterate our BUY rating on Transneft with a target price of USD1,086/pref. share.