Page 73 - RusRPTAug19

between the cost of a barrel of the black stuff and the height of the leading dollar denominated RTS index has broken down. And the relation was further weakened by the re-introduction of the so-called budget rule at the start of 2018, where all government oil revenues from when oil prices are over $40 are siphoned off into the state’s rainy day fund.
There is a handy rule of thumb for checking if Russian share prices are over or undervalued as the RTS’s value is on average x20 the cost of a barrel of oil.
Although this relation doesn't work as well as it used to despite the run up in oil company prices this year, that are easily outperforming the RTS, according to the rule of thumb the RTS is undervalued by over 400 points as of August – the biggest gap it has displayed for at least two years.
Aton top stock picks for 2H17, drivers
Company Ticker TP Upside Key drivers potential
Sberbank SBER RX RUB210 43% The bank trades at a 2017 P/E of 5.0x and P/BV of 1.0, which is well below EM peers. It enjoys high and sustainable ROE above
20%. Dividend payout ratio can be increased after 2017. Best liquidity in the market and strong corporate governance.
Alrosa
ALRS RX
RUB125 43%
Trades at 4.7x 2017 EV/EBITDA, offering a discount to global diversified miners (5.3x) and Norilsk Nickel (6.6x). Recent stock underperformance caused by sanction concerns (Alrosa is a state- owned company) is unjustified, in our view. We expect the stock to be supported by strong summer monthly sales as well as its FY16 dividends (10% yield). Alrosa generates strong FCF yielding 15% and has low debt of 0.6x.
Unipro UPRO RUB3.55 41% Turnaround story: we expect bright 2017 earnings with further
RX momentum supported by the Berezovskaya unit’s relaunch. One of
the best high-conviction dividend plays in the sector.
TCS Group TCS LI $15.2/GD 35% R
Management guides for 25-30% EPS growth in 2017, the highest in the sector. Strong 1Q17 IFRS results suggest the bank is on track to reach its FY guidance. Dividend policy assumes a 50% payout ratio from IFRS net income on a quarterly basis. The stock trades at a P/E of 9.0x, high compared to peers, but for this reason the
73 RUSSIA Country Report August 2019 www.intellinews.com