STOCKWATCH - RCI Keeps Romanian Power Grid Operator Transelectrica at 'Buy'

“As maintenance expenses are seasonal, and a rise over expectations in the third quarter of 2008 could be compensated by a fall over the fourth quarter, we consider that the released results came broadly in line with expectations. Thus we maintain our Buy recommendation and place our target price under review to incorporate the released results into our forecasts,” RCI said in a statement.

RCI cut the 12-month target price to 24.7 lei ($8.4/6.5 euro) from 35.0 lei per share in September.

“We focus our attention on the cost items related to electricity transmission, as this constitutes the core activity of Transelectrica, determining its profitability, with system services and balancing representing pass-through revenues. Personnel expenses reached 35.3 million lei, 7% below estimates, but maintenance costs reached 64 million, 15% above expectations,” the statement said.

The rise in maintenance costs impacted negatively the operating profit which stood at 28.9 million lei, 15% lower than expected. Revenues reached 665 million lei, down 11% compared with RCI’s estimates.

Interest income exceeded RCI’s estimates by 50%, reaching 9.4 million lei, which pushed the bottom line to 17.4 million lei, only 4.0% below RCI’s forecast.

Transelectrica is listed on the Bucharest Stock Exchange (BVB) and is part of BVB’s blue-chip index, the BET. Its shares last traded at 13.2 lei by 1228 GMT, down 8.97% from Monday's close.

(1 euro = 3.7787 Romanian lei)