Page 19 - RusRPTFeb19

While the indices have not really changed the story is very different at a corporate level and some names stand out. Sistema returned a spectacular 128% y/y over 2018, but this was a special case. However, the crisis of 2014- 2016 and the subsequent slowdown has been driving a massive consolidation in many sectors as the big and strong swallow the weak and poor and these leading companies have used their financial resources to grab more market share by aggressively going after new customers. The upshot is at a microeconomic level earnings and profits for some companies have been very strong. And as Kirill Chuyko, the head of research at BCS Global Markets, pointed out in a recent bne IntelliNews podcast, owners at these companies are now paying out the highest dividend yields in the world. That means the shares of some individual names have soared. Russian equities are a stock pickers game and it’s not for the faint of heart.
In 2018 the best performing of the liquid shares were almost exclusively in the raw material exporters that are benefiting from the low wages thanks to a devaluation in 2014 against high commodity prices. Rosneft, for example, earned more profit in the first quarter of 2018 than it did in all of 2017. The best performing stocks in 2018 included:indepdent gas producer Novatek (+ 62%), regional oil company Tatneft (+ 48%), and the oil production arm of the state’s gas monopoly Gazprom Neft (+ 47%).
In the coming year, Vedomosti cited analysts that recommend inexperienced investors to stay away from stocks, as with the looming sanctions the main goal for 2019 is to get through what is expected to be a volatile year without losses. For most people that means staying in cash and parking the money in a dollar or euro account.
For the braver, analysts came up with similar recommendations to previous years. Amongst the most popular ideas for 2019 is what has turned into an old chestnut for veteran investors: the preferred shares of Surgutneftegaz. Apart from the low wage/high oil price equation that has made all raw material producers profitable, Surgutneftegaz has built up a massive $40bn cash pile and two thirds of its dividend expected 18.6% dividend payout is from profits on investing this cash, with the rest from actually producing oil. Investing in Surgutneftegaz is actually the same investment as depositing cash in a bank in dollars, plus a bit of extra profit from the oil business.
However, some say the oil story is over and expect prices to fall this year. BCS Broker Sergei Gaivoronsky told the Russian paper to avoid oil exporters this year and recommends instead to switch to metallurgy such as aluminium producer UC Rusal and gold miner Polyus Gold.
2.4 Merger between Otkritie and Binbank creates a new top 5 banking player that is open for business
The completion of the merger between troubled Financial Corporation Otkritie and Binbank (aka B&N Bank), both of, which were taken over by the Russian regulator last year, has created a top five biggest Russian by bank with RUB315bn ($4.7bn) in capital, Vedomosti reported on January 10.
“[The capital] is formed entirely with real money... Therefore, the merged bank complies with [regulatory] all standards by a large margin. Accordingly, it is possible to issue more credits,” Mikhail Zadornov, who was appointed the head of Otkritie by the Central Bank of Russia (CBR) last year said in an interview with Russia 24.
According to Zadornov, Otkritie now has “fourth or fifth” most capital of any bank in the country.
19 RUSSIA Country Report February 2019 www.intellinews.com