Russian Equities Weekly 15-19/10/2018

23.10.2018

The Russian equity market fell last week, partly due to pressure from news related to Sberbank and Yandex. The media reported that the state-own bank might acquire 30% of Yandex.

Yandex effect


Week 

YTD

RTS Total Return (TR) in USD      

-1.2%

2.9%

MOEX index TR in RUB

Composite

-2.4%

17.2%

Blue Chip

-2.6%

20.7%

Small and mid-cap

-1.4%

-13.2%

MOEX sector index TR in RUB

Metals & Mining

0.7%

14.7%

Power Utilities

-0.6%

-2.5%

Consumer Goods

-2.2%

-15.2%

Oil & Gas

-2.3%

43.4%

Financial Services

-3.2%

-11.4%

FX

RUB/USD

1.3%

-11.9%

RUB/EUR

1.5%

-7.6%


Data as of October 19, 2018
Sources: TKB Investment Partners (JSC) calculations; Bloomberg



Russian equity market dynamics


The Russian equity market fell last week, partly due to pressure from news related to Sberbank and Yandex. The media reported that the state-own bank might acquire 30% of Yandex. Investors were disappointed with the prospect of an IT company to come under government control.  Yandex’s share price of fell by 16% in US dollar terms on the news. However, Sberbank denied the new reports on this topic as being just rumours.

The equity market also came under pressure from the fall in energy sector share prices. Gazprom, Lukoil and Novatek all fell as investors likely decided to fix some profits. These stocks had previously performed strongly since the end of July on the back of high oil prices.

Metals and mining companies outperformed the market, mainly thanks to gold producers. The stocks of Polymetal International and Polyus Gold rose by 8.2% and 4.5%, respectively, in rouble terms. This was thanks to the gradual rebound in gold prices, which over the last two weeks have risen by 2% in US dollar terms.

The financial services segment lagged the market. This was due to Sberbank, Moscow Exchange and VTB, whose stocks fell by 4.2%, 3.1% and 2.8%, respectively, in rouble terms. There is uncertainty about the dividend pay-outs from these financial companies. The news related to Sberbank and Yandex likely raised questions about sources of funding the deal. Meanwhile, systemically important banks also need to increase their capital adequacy ratio in line with the implementation of Basel III standards. As a result, at the end of September, Moscow Exchange announced it will not pay interim dividends to shareholders. Last week, the Ministry of Finance also said that VTB could partly sacrifice its dividend pay-out to comply with the Basel III requirements. 


 

Main Russian news


Russia’s main macroeconomic indicators were generally weaker in September. The growth of industrial production slowed compared to August due to weaker manufacturing output. There was one less working day in September this year than in 2017. It partly explained the output of certain products (some types of vehicles, chemicals, etc.) falling or slowing after a strong rise in August. Meanwhile, a surge in the extraction of mineral resources softened the decline of the headline figure: Russia continued to expand its crude oil output in line with the OPEC+ agreement. Consumption growth also slowed due to flat food sales. However, real wages continued to grow at a solid pace. 


  September 2018, YoY August 2018, YoY
Industrial production
     2.1%      2.7%
Manufacturing
    -0.1%      2.2%
Extraction of mineral resources
    6.9%      4.5%
Retail sales
     2.2%      2.8%
Food segment
     0.0%      1.3%
Non-food segment
     4.1%      4.2%
Real wages*
     7.2%      6.8%
*Data was revised by Rosstat


The Russian government plans to establish a new interregional airline. In 2017, direct regional flights without stopovers in Moscow accounted for only 23% of the total. In his executive “May orders”, Mr Putin requested the government to increase this proportion to 50% by 2024. The new airline could start operating in 2019 and should be able to carry some 6-10 million people a year, according to the plan. That would make it one of the largest players in the Russian market after Aeroflot and S7. Sberbank and VTB are in charge of establishing the new airline. However, their future stakes in the company are still uncertain. The structure of other shareholders also remains unclear at this point. 


Author: Maria Rybina, investment specialist


To watch...


 Magnit, X5 Retail Group, Unipro, Inter RAO, NLMK and Novatek are due to publish its Q3 results


Sources: Vedomosti, VTB Capital, Interfax, TKB Investment Partners (JSC); as of October 2018



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


Major RTS index constituents     Q1 2018     Q2 2018     Q3 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% 0%
     NLMK -4% 14%  
     Moscow Exchange -7% -8%
 
     Inter RAO 53% 52%  
     Magnitogorsk Iron & Steel -22% 6%  
     Phosagro -31% -45%  
 
* 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 October 19, 2018