UPDATE 1-RESEARCH ALERT-CS cuts Comstar, ups Golden Telecom

Thu Aug 30, 2007 4:56am EDT

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Aug 30 (Reuters) - Credit Suisse downgraded Russia's fixed-line telecoms operator Comstar CMSTq.L to "underperform" and raised its price target on Golden Telecom GLDN.O, saying it strongly preferred Golden Telecom to Comstar.

Downgrading Comstar from "neutral" the brokerage said it regarded the stock fundamentally overvalued.

Analyst Olga Bystrova said that while she incorporated the potential impact from new management's strategy and treated the Svyazinvest stake based on market-implied values and consequently modestly increased her target price on the stock, she thought the relative valuations of Comstar were demanding in the sector context.

In Dec. 2006, Comstar bought a blocking stake in Svyazinvest, the main player in fixed-line telephony in Russia, for $1.3 billion.

Raising her price target on Golden Telecom to $82.80 from $75 on the back of strong second-quarter results and raised guidance, Bystrova said she viewed the company as a good quality investment at very reasonable valuations. Bystrova kept her "outperform" rating on the stock.

Credit Suisse said although it forecast Comstar to accelerate growth in two segments, residential broadband in Moscow and regional operations, it saw limited growth and margin impact from efficiency improvements in the company's larger traditional business beyond 2007 estimates.

In contrast, the brokerage believes, Russia's largest independent fixed-line operator, Golden Telecom has very strong growth momentum in the corporate and residential broadband businesses both in Moscow and the regions. (Reporting by Nivedita Gupta in Bangalore)

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