Page 74 - RUSRptOct18

8.3 Stock market
8.3.1 Equity market dynamics
With the price of oil rising above $80 per barrel in September the stock market on the traditional comparison to x20 the oil price is looking cheaper and cheaper .
If the relation holds, as in the past, that the value of the RTS should be the cost of a barrel of oil x20 then the current RTS level of just under 1100 is 546 points undervalued - its most undervalued in more than two years.
About two thirds of the capitalization of Russia’s stock market is made up of oil and gas names and in the past the market’s performance has been closely tied to the price of oil. However, as politics have come to player a bigger role the relationship 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 this year, where all government oil revenues from when oil prices are over $40 are siphoned off into the state’s rainy day fund.
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.
74 RUSSIA Country Report October 2018 www.intellinews.com