Page 15 - RUSRptOct18

Russia is on the edge of a major infrastructure push, say experts quoted by Vedomosti. Infrastructure is one of the priorities highlighted in Putin's May decrees.
2.8 Who’s the king of the castle? Five stocks battle for “most valuable” title
In 2007 Alexei Miller, CEO of Gazprom, Russia's state owned gas monopoly, boasted that in ten years time the value of his company would rise from the then $360bn valuation to become the world’s most expensive company and the first with a market capitalisation that topped $1 trillion.
Gazprom was on a role at the time. With the world's largest gas reserves, and unrivalled access to the European markets the "state within the state" had been supplying up to 80% of Europe's gas in the 90s and following the removal of the so-called "ring fence" in 2006 - special regulations that limited foreigner from owning its locally traded shares -- the stock soared.
And then it all went wrong. Russia’s petro-driven growth model became exhausted in 2013. Growth stalled. The oil of hydrocarbons crashed the next year. And the US sanctions regime was rolled out that had Gazprom squarely in its crosshairs. Today Gazprom is still one of Russia’s most valuable companies, but it is only worth $56bn at the time of writing. America’s Apple Inc became the world’s first trillion-dollar company in September.
Of course Russia's leading stocks have all been battered by the geopolitical showdown between east and west since the Kremlin annexed the Crimea in 2014, but while the leading indices have remained range bound ever since some of Russia's individual stocks have done extremely well as the economy begins to recover and oil prices rose to unexpectedly high levels this year. A battle has broken out amongst the five biggest names in the Russian market for the title of Russia's most valuable company.
The rise in oil prices this year has boosted the stocks of Russia’s raw material producers which account for about two thirds of the stock market’s capitalisation. But the most valuable company in Russia for most of the last year has been state-owned retail banking giant Sberbank .
Sberbank is the stand out favourite for portfolio investors. The bank dwarfs everything else in the sector and is a proxy for the entire economy. But despite its massive size – Sberbank holds about half of all the retail deposits in the country – the bank’s CEO German Gref is also widely considered to be one of the most progressive managers in the country. The cheap deposit base is of course a boon but the bank consistently has a return on equity in the mid20s, ahead of its pure banking rivals and in the crisis years of 2014-2016 was earning the entire banking sector profits on its own. Sberbank earned RUB117bn ($1.8bn) in 2015, but Gref says profits will rise to over RUB1 trillion ($15.2bn) in the next few years.
Sberbank’s stock has become something of a bellwether for the Russian equity market. The bank’s market cap is the only one of the five biggest stocks to have broken north of $100bn in recent years making it nearly worth $50bn more than Rosneft in March, but it has since lost the lead again to Rosneft, as the impending US sanctions will hurt the banking business more than the oil business. At the start of September the bank’s market cap had almost halved to $57.4bn.
While Sberbank was coming off the boil, oil prices have been heating up this year. From lows in the 40s in 2014 the cost of a barrel has recovered this year
15 RUSSIA Country Report October 2018 www.intellinews.com