LONDON, September 7, 2016 /PRNewswire/ --
TransContainer is weathering the sanctions and oil price-led economic slowdown in Russia well. While current earnings are cyclically depressed, cash flow generation remains positive and a payout ratio of 25% is intact. Our forecast five-year EBITDA CAGR of 11% is driven by end-market growth, and by TransContainer capturing a bigger share of this with its higher-margin integrated freight forwarding business. In the 10 years since its foundation, management has invested RUB24bn enhancing its fleet and integrated client offering, thereby laying the foundations for earnings growth and margin expansion as markets recover.
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Our fair value for TransContainer is RUB3,400/share. Versus domestic and international peers, TransContainer is reasonably priced at 5.9x one-year EV/EBITDA (based on its own definition of EBITDA; sector: 9x). A key value driver is its high level of cash generation, with FCF/share of RUB397. TransContainer also looks attractive on a PEG ratio basis. FY16's PEG is 0.38x (based on 24% earnings growth and 9x market P/E). However, given the high degree of political risk in Russia, TransContainer's high WACC of 13.0% is justified. This weighs on our DCF valuation and the company earns well below its WACC on an ROCE basis. We believe any macroeconomic and geopolitical improvement in Russia will be reflected in a more favourable WACC.
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