London, UK, 25 September 2018

Edison issues outlook on TransContainer (TRCN)

TransContainer (TC) has continued to show strong results, with Q218 EBITDA, reported on 29 August, increasing by 13% y-o-y. The company is benefiting from structural growth, especially switching rail cargo to containers, and Russia's economic recovery. Recent monthly market data bode well for TC's Q318 results. It has also continued to pursue initiatives that are benefiting the EBITDA margin by increasing the proportion of Integrated Services, profit-making runs and block trains. Our DCF model gives a valuation of RUB5,200/share (unchanged), which offers 12% upside to the current share price.

We have maintained our valuation of TC at RUB5,200/share. Our valuation offers 12% upside to the current share price and is based on a DCF model, using a WACC of 10.4% and a terminal growth rate of 1%. We think TC seems undervalued compared to the peer group of international rail-based companies given it trades on a 2019e P/E of 9.2x, compared to the average of 15.9x, albeit some discount is probably merited due to Russian risk. We have maintained our current forecasts.

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