Russian Equities Weekly 03-07/09/2018

12.09.2018

Global equity markets declined last week, with the MSCI World and MSCI EM indices dropping by 1.7% and 3.1% respectively in US dollar terms.

Fail to escape global sell-off


Week 

YTD

RTS Total Return (TR) in USD      

-3.8%

-5.1%

MOEX index TR in RUB

Composite

-1.0%

14.7%

Blue Chip

-0.7%

18.2%

Small and mid-cap

-3.1%

-12.1%

MOEX sector index TR in RUB

Oil & Gas

0.5%

39.1%

Consumer Goods

-1.3%

-7.3%

Metals & Mining

-1.4%

7.3%

Power Utilities

-2.1%

-3.3%

Financial Services

-3.1%

-8.6%

FX

RUB/USD

-3.7%

-17.6%

RUB/EUR

-3.1%

-13.9%


Data as of September 7, 2018
Sources: TKB Investment Partners (JSC) calculations; Bloomberg


Russian equity market dynamics


Global equity markets declined last week, with the MSCI World and MSCI EM indices dropping by 1.7% and 3.1% respectively in US dollar terms.

The Russian equity market failed to escape this broader sell-off mainly due to concerns arising from the banking committee of the US Senate discussing the possible tightening of sanctions against Russia.

The oil and gas sector outperformed the market, mainly due to the performance of Novatek, whose share price rose by 6.3% in rouble terms. Novatek investors were likely optimistic regarding the stock on the back of the company’s statements about expanding its Yamal and Artic LNG projects.

The financial services sector was hit the hardest during the week, with VTB and Sberbank’s stock prices falling by 5% and 3.9%, respectively, in rouble terms. The negative sentiment on banking stocks was likely rooted in investor concerns over possible US sanctions on their business in the United States.



 

Main Russian news


Inflation in Russia accelerated by the end of August to 3.1% YoY from 2.5% YoY at the end of July. Food prices were the main driver, rising to 1.9% YoY from 0.5% YoY the month before. This was mainly due to faster rises in fruit and vegetable prices compared to the low base from August 2017 when there were strong harvests. In contrast, consumer price indices (CPI) for non-food items and services remained largely unchanged compared to July, being at 3.8% YoY and 3.7% YoY respectively.

Novorossiysk Commercial Sea Port (NCSP) published strong results for the first half of 2018.  The company’s revenue rose by 7% YoY mainly due to an increase in highly profitable freight, such as those of grain, which was up by 32% YoY. Consequently, its EBITDA also rose by 3.7% YoY. The company reduced its debt significantly, with its net debt falling to USD 880 million from USD 1 075 million as at the beginning of the year, bringing the net debt/EBITDA ratio down to 1.3x from 1.7x. The company also moderated its capital expenditure, which fell by 55% YoY and totaled only USD 30 million in the first six months. Overall, we expect NCSP to generate solid free cash flow this year and to deliver double-digit free cash flow yields. It should also able to provide double-digit dividend yields in the next three years.

Sberbank published strong interim data for the first eight months of the year according to Russian Accounting Standards. The bank’s earnings rose by 24.7% YoY in rouble terms, which implied a return on equity of approximately 23%. Another high point among Sberbank’s results included its net interest income rising by 6%, driven by higher levels of working assets and lower client fund costs. The bank’s  net fee and commission income rose by 24.8% YoY on the back of better operational results from banks cards and acquiring, settlement transactions and fees from insurance products. We think this stock is significantly undervalued at the moment given the concerns regarding possible sanctions against the company. We expect Sberbank to continue posting strong results in the next three years, delivering free cash flow yields of more than 20% in US dollar terms in each of the next three years.




Author: Maria Rybina, investment specialist


To watch...


No major macroeconomic or corporate news expected in the coming week.


Sources: gks.ru, VTB Capital, Sberbank CIB, TKB Investment Partners (JSC); as of September 2018



Quarterly results: Actual vs. consensus for EPS, adjusted (US dollars)*


Major RTS index constituents     Q1 2018     Q2 2018
     Lukoil              9%            1% 
     Gazprom              9%      -12.3%
     Sberbank            12%           -4%
     Novatek            13%            6%
     Tatneft              8%       33.7%
     Magnit           -12%         -19%
     MTS            -8%           -8%
     VTB          170%            7%
     Alrosa            64%          13%
     Severstal          -14%          14%
     NLMK            -4%          14%
     Moscow Exchange            -7%           -8%
     Inter RAO           53%          52%
     Magnitogorsk Iron & Steel          -22%            6%
     Phosagro          -31%          TBA

* based on Bloomberg consensus

TBA – to be announced

  Actual figure is better than consensus by more than 5%
  Actual figure is worse than consensus by more than 5%
  The deviation of actual results from consensus is between -5% and 5%

Source: Bloomberg, TKB Investment Partners, data as of August 31, 2018