Page 31 - Eastern Europe Outlook 2020

- numerous share buybacks and other actions to improve investor sentiment.
A late breaking “Santa rally” kicked in in the last month of the year and drove the market up to 1,500 by the end of the year. In the good years there is also a “spring rally” where the RTS gains another 185 on average over the last decade before a correction around Easter.
Analysts at Sberbank are a lot more optimistic about 2020 and upgraded their end of year target for the RT to 1,800 – its highest level in over five years -- predicting it will definitely break out of its trading band, where it has been stuck for the last five years, in 2020.
“The [Russian equity market] is the best performer by far this year, and is not overheated yet,” ​Cole​ ​Akeson​, an analyst with Sberbank CIB, said in a note on December 17. “The Russian equity market has delivered a 47% total return in 2019 versus 12% for emerging markets.”
The rally in 2019 was fuelled by fading fears of new and harsh US sanctions on Russia, as Washington is increasingly distracted by the impeachment process of US President Donald Trump and a scandal centred on his dealings with Ukraine.
“The equity risk premium is continue normalizing toward the historic average of 6%. Sberbank is projecting some 250 bps of contraction in cost of equity, which translates into a P/E expansion from 6.7 to 8.0 (+20%). A 7% dividend yield increases the anticipated total return to 27%,” ​Akeson said.
The big gainer of the year that helped push up the index performance was Gazprom which returned 76% over the year​ at the time of writing. This was due to the management board’s decision to double the dividend payout from RUB8 per share that the company has been paying for years to RUB16 under pressure from the government. This is not quite the 50% of net profit that the Ministry of Finance has ordered all state-owned enterprises (SOEs) to pay, but Gazprom will reach this level in 2020.
The decision to double the dividend caused Gazprom’s shares to gain 30% in a day, but this was a one off gain and even with the increase in dividend payments due in 2020 this will not be enough to lift the market.
State-owned retail banking giant Sberbank will also increase its dividend to 50% in 2020 but likewise this will improve sentiment but will not be a dramatic impetus for the market.
In general the Russian equity market has been going through a staggered rerating over the last two years, starting with X5 shares in 2017 that doubled in value that year. Following the annexation of Crimea all Russian stocks were depressed. Tinkoff bank that had just IPO’d at $17 saw its shares fall to $1 in 2014.
But with valuations so drastically reduced by the panic following the Crimea sanctions, stocks have been recovering their value again and the recovery started in retail. Tinkoff’s shares have also not only recovered all the ground lost but were trading at around $20 at the time of writing.
31​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com