Page 90 - RusRPTMar19

warned in October.
At the end of 2017, 50% of net profit under IFRS was paid by all large state- owned companies, except for Gazprom, which gave up only 26% of profit under IFRS, or about RUB190bn, despite being the largest of the SOEs. The company explained its failure because of its large investment program into pipelines including Power of Siberia, Turkish Stream and Nord Stream 2 pipelines. Having failed to receive additional dividends from Gazprom, the state made up for the lost nby hiking the mineral extraction tax (MET) instead.
It's a new year and Russia’s equity markets usually rally through to Easter on the back of seasonal effects. There is an old saw in Russia that if you buy at the start of the year and “sell in May and go away” the market, in non-crisis years, usually returns 20%.
Year to date the dollar denominated Russia Trading System (RTS) is already up 11% on the back of a rally that started at the end of last year, driven partly by improving sentiment after the US Treasury Department (USTD) decided to drop entirely the April 6 round of sanctions on companies owned by Russian oligarch and Kremlin insider Oleg Deripaska – the first sanctions to be withdrawn since the Russian clash with the west began in 2014 after the annexation of Crimea.
Ruble denominated Moscow Interbank Currency Exchange (MICEX) has done less well but it also up 5% YTD, but its gains have to be off set against the ruble exchange rate and although the index is currently at an all time high the ruble is up 5% against the dollar, lifting the dollar value of the index. That compares with the MSCI EM index, which covers all emerging markets, that has returned 6% YTD, and the MSCI World index that has also returned 6% YTD.
However, both these indices have been more or less range bound for most of the last four years. The market is unlikely to rally unless the show down with the west is resolved. The same is true for most indicators: M&A deals are booming in Central and Eastern Europe (CEE), but down 10% in Russia; investment and economic growth is stagnant; real incomes were down again slightly in 2018 for the fifth year in a row; and so on.
But the same is not true at the corporate level where things are looking decidedly rosier.
Russian companies had their most profitable October in three years (the most recent data available), earning cumulative profits for the year worth $174bn – about a third more than they earned over the same period a year earlier.
The Central Bank of Russia (CBR) just released the preliminary 2018 results
and banks too are also back in the black after two years of losses. The sector earned a healthy RUB1.3 trillion ($19.6bn) of profits, and if you take out the wounded commercial banks the CBR took over in the autumn of 2017 then the sector earned a whopping RUB1.9 trillion ($28.6bn). The crisis of the last years has caused a consolidation in Russia’s economy and the winners from this process have done very well for themselves – and they are sharing their windfall with investors by paying out large dividends.
Dividend yields
At the start of the year Russian daily Vedomosti calculated which investments paid out the most in 2018 and the winner was the stocks and bonds of Russian conglomerate AFK Sistema that returned 128% and 55% respectively.
That was a special case as its corporate war with state-owned oil major Rosneft came to an end and saw its share and bond prices rally sharply once it became clear the company would not be bankrupted or nationalised.
But across the board leading companies in selected sectors have seen their
90 RUSSIA Country Report March 2019 www.intellinews.com