Page 83 - RusRPTMar19

of emerging markets,” Tachennikov added.
Investors are still holding names like: the privately owned Lukoil that has seen its share price almost double last year; privately owned Surgutneftegaz prefs, thanks to its $40bn cash pile, interest on which account for about three quarters of its dividend payments; along with independently owned gas producer Novatek. The state-owned bluechips have been treading water, as bne IntelliNews recently reported in “Sberbank retakes Russia’s equity King of the Castle title.”
Sectors connected to the consumer are coming back into focus with the traditional favourites catching the most attention, including: state-owned retail bank Sberbank, internet search engine giant Yandex and supermarket chain Magnit among the most popular names, according to BCS.
Eyes on Gazprom
The state-owned gas giant Gazprom has started to peak investors curiosity and as is the possible candidate for good returns this year. The company’s stock has been an underperformer for most of the last two years and had a particularly bad year in 2018, having lost some 30% of its value.
However, things are about to change significantly for the company’s business. On February 27 the company announced construction of the Power of Siberia gas pipeline to China is now “99% complete” and it expects to start delivering gas over the border from December this year.
At the same time the company said this month that 700km from 1200km Nord Stream 2 pipeline is now complete and recently moved up the completion date from the start of 2020 to the end of 2019.
Gazprom has been investing a record RUB1.1 trillion in these big construction projects, but as the capex on them falls away at the start of 2020 the company will have significantly more free cash to share with its shareholders – including the cash strapped government that is keen for all state-owned enterprises (SOE) to pay 50% in dividends.
And Gazprom just hinted that it would pay record dividends its 2018 dividend payments from the 20% dividend yield it has paid in the last two years, blaming the low level on the need for investment into its mega-pipeline projects.
“The high yield in favourites means all eyes are on Gazprom, but investors are still not overweight in the name. Lukoil and Tatneft prefs seem to be everyone’s choice now thanks to a decent yield either in the form of dividends or buyback,” says Tachennikov. “Gazprom was frequently the centre of discussion, but although the street agrees that downside is limited, concerns about future capex plans, dividend per share (DPS) and the impact of the new mineral extraction tax (MET) still limit exposure to the stock.”
Rosneft was until recently briefly Russia’s most valuable stock on the back of outsized profits in 2017, but the appeal has fall back now and it is out of favour, as investors are concerned about possible write-offs in the Venezuelan crisis, where the company has significant projects.
Gas producer Novatek has also become the focus on investors as its investments into LNG go from strength to strength. The company is again on investors’ radar, according to BCS, ahead of the anticipated sale of stake in its Arctic LNG 2 project.
83 RUSSIA Country Report March 2019 www.intellinews.com