Ukraine held elections for the third time in four years over the weekend. The pro-Western block of parties that originally formed the Orange Revolution were the surprise winners by a slight margin. Former Prime Minster Yulia Tymoshenko’s party produced the upside surprise bringing in over 30% of the vote, possibly coming in first place. With current President and coalition partner Victor Yushchenko’s party bringing home low to mid-teens support, the Orange coalition should be able to produce majority government and appoint Yulia Prime Minister.
Heading into the elections many observers thought current Prime Minister Victor Yanukovych would be forming the next government with his pro-Russian communist allies. Yanukovych’s party may still take home the most votes but he will be unable to form a majority coalition. How he and his supporters react will determine whether Ukraine will finally have a stable coalition government.
The outcome of this election is important to Central European Media Enterprises…..

….On the surface a pro-Western government should be a good outcome for CETV. Furthermore, CETV recently added one of Ukraine’s richest men and a major Yulia supporter to its Board. One risk, however, is that the Orange collation will return to a policy that reverses privatizations which it followed when it first took control in Ukraine several years ago. It was this policy that led to return of a pro-Russian government. CETV’s assets are not at any risk if privatizations are reversed but the policy would probably lead to turmoil that could spoil Ukraine’s booming economy and advertising market.
While the election results are a positive for CETV, the more important near-term news is whether the company was able to capitalize on political spending and simultaneously begin to rebuild its ratings Studio 1+1, the #2 ranked TV station it owns in Ukraine. If so, third quarter results could be better than expected and the low end of full year guidance could be increased. CETV also has estimate upside due to continued strength in Croatia, the Czech Republic, Romania, and Slovakia although it is a bit early in the fall TV season to be secure in trends for the balance of 2007 and the first half of 2008.
I expect to hear more on these issues in two weeks when the company hosts its annual analyst meeting. Overall, I expect good news which has the potential to move CETV to new highs. Keep in mind, however, that the shares are very sensitive to trends in emerging stock markets, especially on a day-to-day, short-term basis.