Page 60 - Russia OUTLOOK 2022

• Corporates
Russian firms had a bountiful 2021, earning the best profits in five years
and making steady gains all year.
The profits of Russian corporate profits soared in July 2021, and were up five-fold in the third quarter of 2021, mostly, but not only, driven by energy companies. Banks were also making even more profits than the corporates.
In July 2021 corporate profits rose to RUB2,767bn ($38.6bn), more than twice as much as the RUB1,061bn that companies earned in the same month a year earlier, but also more than twice as much as the RUB1,070bn they earned in July 2019, the last year of strong growth.
On a cumulative basis companies earned a total of RUB14,368bn ($197.6bn) in the first seven months of this year. That was almost triple the RUB5,370bn they earned in 2020 and a third more than the RUB9,111bn they earned in 2020.
Current earnings momentum is close to a maximum, 3Q21 indicates, as the strongest momentum was registered in 2Q21 off the low base of 2Q20, unsurprisingly. Specifically, counting in all banks and financials, of all the RTS constituents that report quarterly, 3Q21 revenue growth amounted to 53% in USD-terms. Aggregate EBITDA increased by 70% and net profit rose five-fold to more than $31bn.
Steels and Oil & Gas led. It is clear that many commodity producers saw the greatest earnings momentum. Sector-wise, Steels managed to increase EBITDA by 226% y/y, followed by gas producers with a 111% increase and the oil sector with a 61% rise.
Recovery of domestic companies lags. Among domestic-oriented names, Banks showed a solid 33% increase in operating income in USD-terms. However, most other domestic-oriented sectors were less impressive with an average EBITDA increase of less than 20%. Internet stocks on an aggregate basis disappointed with a 73% decline in aggregate sector EBITDA y/y, which was primarily attributable to Yandex and the wider losses of OZON.
Soaring margins to ignite the capex cycle. Record-high margins translate into record-high ROEs. Anomalous returns are likely to attract fresh capital and increased competition ultimately is bound to erode margins. Wage inflation is another way that margins could normalise.
60 RUSSIA Russia OUTLOOK 2022 www.intellinews.com