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bne October 2018 Cover Story I 25
In 2007 Alexei Miller, CEO of Gaz- year. A battle has broken out amongst the impending US sanctions will hurt
the five biggest names in the Russian market for the title of Russia's most valu- able company, as the leader changes on almost a weekly basis as the companies reel from the latest news.
The rise in oil prices has been one con- stant in this story and underpins the rise in most of the top company share prices, 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 standout 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 coun- try – the bank’s CEO German Gref is also widely considered to be one of the most progressive managers in Russia. The cheap deposit base is of course a boon, but the bank consistently has a return on equity in the mid 20s, ahead of its pure
prom, 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 roll at the time. With the world's largest gas reserves, and unrivalled access to European markets, the "state within the state" had been sup- plying 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 foreigners 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 price 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 was only worth $56bn at the time of writing. America’s Apple Inc became the world’s first trillion-dollar company in August.
Russia's leading stocks have always been volatile. The standing joke amongst trad- ers in Moscow is the Russian market is either the best performing in the world
– or the worst. But the swings have become violent as sentiment is battered by the geopolitical showdown between east and west since the Kremlin annexed the Crimea in 2014. Currently Russian stocks are amongst the cheapest in the emerging market universe.
“Investor dislike for EM equities hit
a new multi-year low this week,” Vyacheslav Smolyaninov, the chief strategist at BCS Global Markets told bne IntelliNews. “The sell-off may be overdone, if the world economy emerges from the trade wars unscathed, which is our base case.”
But while the leading indices have remained range bound for most of the last four years, some of Russia's individu- al stocks have done extremely well as the economy begins to recover and oil prices rose to unexpectedly high levels this
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 to aver- age over $65 in the first quarter and rose again in the second to over $75 a barrel.
That catapulted state-owned oil major Rosneft to the top of the tree as Russia’s most valuable company. The company earned more money in the first quarter of this year than in all of 2017 and its market cap jumped to a high of $71bn at the start of August from $55bn a year earlier.
The company is determined to increase its market cap even further and launched an investor relations charm offensive earlier this year, promising to pay down debt and increase dividends. However, after the company launched
“Sberbank is the standout favourite for portfolio investors. The bank dwarfs everything else in the sector”
banking rivals, and in the crisis years of 2014-2016 was earning the entire bank- ing sector’s profits on its own. Sberbank earned RUB117bn ($1.8bn) in 2015, but Gref says he hopes to reach RUB1 trillion of profits by 2020.
“Last year Sberbank must have been the most profitable investment in Russia,” Gref said earlier this year as he became the last manager of a state-owned busi- ness with a trillion-something goal.
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 worth nearly $50bn more than Rosneft in March, but it lost the lead again to Rosneft in August, as
its first ever share buy back two months ago it seems that CEO Igor Sechin balked at actually parting with any cash. He complained the company was under- valued; Rosneft’s market cap has fallen again on the back of fears of new sanc- tions being imposed by the US govern- ment this autumn to $58.6bn as of the last week of September, whereas Sechin says the company should be worth at least $130bn.
Rosneft and Sechin are in the frontline of the sanctions assault as they are very close to President Vladimir Putin, making the company’s stock volatile. Gazprom has also suffered and while the company’s shares outperformed in September, closing almost all the gap with its sister company Rosneft, most of that growth has been driven by the
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