Aug
20
Russian Stock Market Daily trader’s view - August 20, 2008
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Last Tuesday the fall of Russian stock market has continued at an accelerated pace. Do note – all of the required prerequisites have appeared to propel the fall. Virtually all sides of the market were hit with negative issues. First of all – the general tense military-political environment in the world – such as uncertainty regarding the consequences for Russia, after country’s intervention into South-Ossetia conflict. The announcements appearing lately from a number of western countries’ representatives regarding Russia – have an obviously negative nature, hitting Russian market as well. The wave of fall went on around one after noon, when foreign ministers of NATO member countries said that Russia would not go unnoticed, following its actions on Caucasus regions.
Second important issue – the environment of foreign commodity and stock markets, failing during Russia’s trades. Some negative statistics off US on number of new housings built and producer prices, as well as new fears regarding the expansion of mortgage crisis – have all brought upon a second wave of RTS fall. The fire has been fueled even more by the cheapening oil. Whereas resulting stocks of oil & gas firms have proved a considerably pressure upon RTS. However – we think that situation is overly-emotional and after the fall of two consecutive months, the stocks finally consider all risks in their prices.
Tuesday’s results: RTS has been reduced by -5.21% and closed at year and half lowest of 1685.6 points. Negative influence upon the indicator has been brought by stocks of Gazprom (-6.95%), LUKOIL (-6.72%) and Sberbank (-3.86%).
Classic market’s turnover has formed 50.2 mn USD on RTS yesterday. Whilst Sberbank (24.5 mn USD) outran other stocks far away. Two next most significant volumes have been achieved by stocks of Gazprom (9.9 mn USD) and LUKOIL (6.5 mn USD).
The short-term trend of RTS index dynamics remains negative. An additional negative pressure could be formed through statistics published earlier: at its back US indices lost over a percent, while European indices dropped -2%. We think that Russian market would follow the foreign grounds.
Main Russian Stock news
Mechel’s happy ending.
Federal Antimonopoly Service of RF obliged Mechel to decrease coking coal prices by 15%, reported Igor Artemyev, the head of FAS to the journalists on Tuesday. FAS also decided to impose a fine of 5% out of coking coal sales per annum (about 790 mn RUR) on the company.
Aug
19
Daily Russian Stock Market trader’s view - August 19, 2008
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Monday’s environment of Russian stock market was flagged by an extremely low activity of participants. However, the movement vector of most of the quotes was moving upwards and only during the last half hour of trades, it changed course, now moving towards the bottom. The positive movement during the early trades could have been related to a graduate normalization of situation throughout Caucasus. This background even made RTS beat 1800 points during first hour of trades. Although bulls initiative was not supported by majority of investors, and after noon the market dropped slightly, remaining in the positive zone through the day.
RTS of Monday decreased just by little, losing (-0.4%) to 1778.29 points. The top negative of index has been brought by quotes of: Gazprom (-2.29%), LUKOIL (-2.06%) and Severstal (-6.23%). On the other hand, the index has been supported by stocks of Sberbank (+1.91%), NOVATEK (+1.41%) and Surgutneftegas (+1.25%).
Market’s turnover of yesterday was low, forming just 14.7 mn USD. Yesterday’s highest turnovers were achieved by equity of: LUKOIL (5.2 mn USD), Gazprom (2.8 mn USD) and Sberbank (1.5 mn USD).
We think that today – Russian stock market may drop considerably. The external background is not as positive for Russian stocks – US indices have dropped down, no to mention the oil price going below 110 USD (Brent). Nevertheless, the downfall is not likely to be deep – Russian stock market lost enough as it is already.
Main Russian Stock events
LUKOIL is allowed to buy gas stations in Turkey.
LUKOIL have got a permission of Turkish regulatory bodies to purchase Akpet, trade company, possessing 693 gas stations in Turkey, announced Bloomberg. According to a statement of Turkish regulatory body, the deal complies with Turkish antimonopoly legislation.
Other Russian Stock news
Novoship’s 1H 2008 results.
According to IAS 1H 2008 report, Novoship’s revenue increased by 17%, to 371.2 mn USD vs prior results, says company’s statement.
Russian Stock Market Report (PDF)
Aug
18
Earlier this July Sibirtelecom issued a financial report under IAS-compliant financial year 2007. The results in general are quite strong – Sibirtelecom demonstrated one of the top rates of sales increase (among fellow IRCs). More to that – OIBDA margin growth rate has also proved to be highest, adding +9.1 p.p. to 33.6%.
Amongst companies annual achievements – we must point out the hard grip of cost management – the largest expenditure items, such as staff costs and materials & repairs have remained virtually the same over the past year. The reduction of staff costs came up from reduction of number of personnel. In addition to this – the optimization of personnel will continue through following years, positively affecting Sibirtelecom’s general costs.
One of the most important negative facts of the company was negative cash flow by company, at which company ended the year. Not to mention last five years, all demonstrating similar dynamics. This year’s negative result – debt increase, whereas during last two years the debt to own capital ratio is above value 1. This indicates that Sibirtelecom has all the chances to enter the “unsound” range of companies, considering IRCs debt load standpoint. Do note though, according to our estimates – in 2008 company’s cash flow should once more sink into negative zone, confirming our fears regarding the worsening of Sibirtelecom’s financial condition.
The primary reason for possible negative cash flow of 2008 – high CapEx: throughout 2008 Sibirtelecom plans to invest almost 480 mn USD – this is an absolute value for the company.
Now, considering the published report – we downgrade our estimate of fair price of Sibirtelecom’s stock, down to 0.0902 USD per common and to 0.0676 USD per preferred stock. Whilst previous estimates formed – 0.1140 USD and 0.0855 USD respectively (-21% downgrade). The primary reason to cause the reduction of the estimate – aggressive investment program. Nevertheless, in despite such a significant decrease of Sibirtelecom’s value – company still holds a considerable growth potential. This is still yet to be implemented fully, thanks to the market’s general state. Therefore, we confirm “BUY” recommendation for Sibirtelecom’s stocks.
Sibirtelecom: On the edge of debt pit - August 18, 2008 (PDF)
Aug
18
Last Friday had failed to form a single trend. On one hand – external factors were quite sound. DJ added +0.72% and NASDAQ upped +1.03%, Europe’s indicators had also demonstrated a moderate growth. However, commodities market’s situation was not as sound. Brent oil brand’s prices have dropped to 109 USD during the day, metals market had also demonstrated a negative dynamics. The resulting quotes of commodities companies have dropped as well. The top negative influence on index has been put by stocks of Gazprom and LUKOIL. Banking sector’s quotes were quite opposite to the general market, still backed by external factors. The weakening of limitations set upon Fannie Mae and Freddie Mac mortgage firms have propelled US banks’ quotes upwards, and Russian banks were quick to follow.
Main Russian Stock events
Amtel-Vredestein suffers losses.
The net losses by Amtel-Vresdestein in 2007 under IAS have increased 49 times, up to 243 mn USD, from prior year’s 5 mn of total losses, reports company’s press-release.
Other Russian Stocks news
Norilsk Nickel may partner Rostekhnologii in purchasing Udokan.
Rostekhnologii is discussing an opportunity to attract Norilsk Nickel as a possible partner of its consortium with Metallinvest in developing Udokan copper deposit, announced Sergei Chemezov, the chief manager of Rostkhnologii to the journalists on Friday. According to Chemezov, the partnership will be possible only if Norilsk Nickel’s puts copper assets in joint venture.
MTS filed a report against SMARTS.
On July 15th, MTS and Cezanne B.V., its subsidiary have field a report in Federal Antimonopoly Service, concerning the purchase of rights, defining regulation of SMARTS’ business activity.
Power Machines: a little castling.
A quarter report of the machinery concern indicates that Highstat Limited, headed by Alexei Mordashov, has decreased its share in Power Machines from 55.42% to 30%.
Russian Stock News Report (PDF)
Aug
15
Russian Stocks
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The considerably overbought Russian stocks, of then-backed Georgia-Ossetia conflict, were compensating for the drop of quotes yesterday. Primary growth hit the securities of oil & gas sector. Thursday’s compensation was boosted by the news on increasing oil price, caused by data on reduction of US reserves. More to that – the absence of news off Caucasus – is a good news of its own, thus investors begun slowly rejoicing from the political negative background and entered the cheap stocks. Note though – turnover volumes still remain quite low.
Thursday’s RTS increased +1.08% and ended the day at 1795.23 points. The top positive support of the index has been formed by stocks of Norilsk Nickel (+4.72%), LUKOIL (+0.9%) and Surgutneftegas (+4.36%).
The daily turnover of RTS has formed 23.5 mn USD. Highest turnover volumes have been achieved through stocks of: LUKOIL (8.0 mn USD), Gazprom (6.1 mn USD) and Sberbank (2.3 mn USD).
Foreign indices of yesterday’s session have demonstrated a moderate growth. However, commodity markets formed the negative trend anyways. Due to this, the opening of trades is likely to go under a weak positive note. Aside of this, do note the still existing political risks, reducing investment attractiveness of Russian stock market. When coupled together – these factors could prove a withholding influence upon the dynamics of stock indices.
Main Russian Stocks events
UC RusAl insists on unscheduled Norilsk Nickel shareholders’ meeting.
UC RusAl, a holder to 25% shares of Norilsk Nickel, decided to conduct an unscheduled meeting of shareholders, in order to elect a new board of directors. Company’s statement indicates that early September, RusAl plans to present a demand for meeting. RusAl thinks that the current board of directors, whilst ruled by Interros, is unable to stop the failing value of company’s shares, says press-release of the company.
Aug
14
MTS: The art of subscribers’ activity stimulation - August 14, 2008
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Last Tuesday, MTS has published its financial results for 2Q and 1H 2008 under US GAAP report. The company has demonstrated good dynamics at all markets, where company runs its business. Among the positive results are: revenue (+10.8% against 1Q 2008), totaling higher than 2.5 bn USD. Moreover, MTS has all opportunities to reach revenue value above 10 bn USD for year 2008. OIBDA margin added 1.8 p.p. and exceeded 50% over 2Q 2008.
In order to sum up MTS’ results we can say that the company continues stimulating the subscribers’ activity, to more active usage of its services. Therefore, such stimulation concerns not only the emerging markets, but developed markets as well, where cellular penetration exceeds 100%, like markets of Russia and Ukraine. You can find a more detailed analysis of company’s operating results you can find at page 2.
MTS’ financial results appeared to be better than our expectations. Particularly, we have had an overly pessimistic estimation of revenue (the current results have exceeded our expectation by +2.5%). Moreover, we have also forecasted poor results of OIBDA margin, expecting its slight fall. Thus, we see MTS’ results as positive for company’s securities.
We have reviewed company’s model, taking into account the operating and financial results of published report. Reviewing a fair price of MTS’ stocks and we have raised it to 19.59 USD per share (+20% growth vs the previous estimation). Company’s ADR estimation was increased to 97.94 USD per share. The current growth potential of ADR price forms +74.1%. It should be mentioned that the given estimation was made in view of “normal” market conditions. It means: the absence of political and war risks, negative situation, concerning Mechel and also warfare in Caucasus region, which had caused a fall of Russian stock market. However, it is hard to predict such situations, but they have a ruinous influence on Russian stock market.
MTS: The art of subscribers’ activity stimulation - August 14, 2008 (PDF)
Aug
14
The worsening background of external environment, such as the negatively closing primary foreign indices; was propelling Wednesday’s trades of Russian market to start through a slight fall. Aside of that – the criticism of US government of Russian government actions over Georgia-Ossetia conflict came up around the lunch break, further worsening the negative trend. Bad statistics of Eurozone pressured Russian stock market as well. Though the stocks to suffer the most were of oil & gas companies and banking sector, due to the outrunning growth of prices throughout last two days.
RTS of the day ended at 1776.06 points, losing -1.54% of value to its prior closing. Top significant negative influence over the indicator has been made by stocks of: Sberbank (-4.3%), LUKOIL (-4.05%) and Gazprom (-2.86%). Slight support for index has been made by securities of: NOVATEK (+6.4%) and Norilsk Nickel (+2.42%).
Wednesday’s turnover of classic RTS market totaled 43.8 mn USD. Whilst highest turnover volumes have been achieved by stocks of Norilsk Nickel (14.6 mn USD), Gazprom (13.4 mn USD) and LUKOIL (6.4 mn USD).
It seems as if domestic market had once more retargeted from domestic problems towards external factors. US indices had demonstrated a weak, yet positive dynamics yesterday. Asian markets have closed up at a slight downfall. We think that RTS dynamics – backed by these factors, would be moderate, whereas the opening of trades should undergo under a negative vector.
Main Russian Stock events and News
NMLK buys John Maneely, a pipe company for 3.53 bn USD.
NMLK has signed an agreement to buy John Maneely, a steel pipe manufacturing company from Carlyle Group and Zekelman family under 3.53 bn USD.
Russian Stock News in August 2008 (PDF)
Aug
13
Agrochemical companies: Favorite fertilizers - August 13, 2008
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The market of mineral fertilizers currently undergoes the most interesting period of its existence. Like never before world’s population is close to food crisis, or at least – the high inflation of foods due to active consumption of farming products over last few years. Such background, including undersupply and decrease of farmable grounds, make agrochemical sector highly important. Importance births demand, and due to the fact that industry is rather inert – supply cannot meet demand. Then it causes growth of prices at primary types of fertilizers, which is extremely positive upon financials of agrochemical companies.
Agrochemical industry is represented by producers of three primary types of fertilizers – nitrogen fertilizer (manure), and less common phosphoric and potash fertilizers. Producers often sell ready mixes of all fertilizers in optimal proportion.
Nitrogen segment is the most competitive and subjective to influence of many conditional factors in all of agrochemical market, whereas company’s profitability depends upon the price of base commodity – gas, which rises after oil prices, whilst changes are unpredictable. A whole different affair is weaved around potash producers, as their income is related mostly to change of distribution costs, which “eats up” up to 40% of costs, as growth of transport tariffs is much more predictable and stable. Due to this, the most stable and optimal companies are the one producing potash fertilizer.
Ever since year’s start the prices on primary types of products rose sharply. The growth was caused by many reasons, but the primary was the deficit of mineral fertilizers and inflated demand. Ammonia since year’s start added +8.5%, carbamide rose +68.5%, DAP (dibasic ammonium phosphate) grew +109%, potassium chloride climbed +142%. Under such supportive conditions export-oriented company win the most. Russian producers are exactly those kinds of companies. Export forms an average of 80-85%. Therefore we expect some companies to double and triple their primary financials in 2008.
In our report we have evaluated activities of seven Russian companies engaged in agrochemical industry and operating over various segments: Acron, Dorogobuzh, AZOT, KuibyshevAzot, Ammophos, Uralkali and Silvinit. Special attention was aimed at AZOT, Uralkali, Ammophos and KuibyshevAzot. Today stocks of those companies look as the most underestimated and promising considering the financials standpoint, business effectiveness and liquidity. AZOT is specifically interesting, though company’s potential is not as high, its financial condition is stable, as free-float is extremely low, which may lead to a serious volatility. By conducting analysis of given agrochemical enterprises, we recommend “BUY” on stocks of Acron, KuibyshevAzot, Uralkali, Ammophos and AZOT.
Agrochemical companies: Favorite fertilizers - August 13, 2008 (PDF)
Aug
12
Russian Stock News Review
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The start of trades throughout Russian stock grounds was rather controversial, due to uncertainties over Georgia-Ossetia conflict zone. However, RF’s president on completion of a peacekeeping operation in Caucasus region, provoking a significant growth of primary range of liquid stocks. Pushing up the quotes of oil & gas companies over +3%, in despite the fact of oil prices dropping to the level of late April – early May. More to that – the sound report by MTS of 2Q 2008 (US GAAP) did its part too. Backed by this the quotes of the company expanded by +4.46%.
RTS index of Tuesday has added +3.49% and stopped at 1803.82 points. Some significant positive support for the index has been provided by Sberbank (+6.49%), Gazprom (+4.59%) and LUKOIL (+3.56%). The stocks of Rostelecom (-1.09%) were ones to make a negative impact.
Classic market’s turnover of RTS has formed 46.3 mn USD. The top turnovers of the day were achieved by stocks of Gazprom (16.4 mn USD), Sberbank (11.1 mn USD) and LUKOIL (7.5 mn USD).
The fundamental underestimation of Russian stocks and finally – the peace brought upon South Ossetia’s conflict gives hopes to investors for further growth of market. The negative closing of foreign stock indices, in our opinion, will not make a serious hit upon the Russian stock market. At this stage the “peaceful” growth of index seems more actual, rather than influence of external factors.
Main Russian Stock events
MTS: great 2Q 2008 results.
According to financial results under US GAAP 2Q 2008 report, MTS’ revenue increased by 34% vs 2Q 2007 results and formed 2.6 bn USD. OIBDA formed 1.3 bn USD, 32% higher than the results of the prior year. Company’s net income reached 659 mn USD (+30% growth).
Aug
12
The beginning of trading session this Monday was rather unlucky for Russian stock market. Slammed by events in South Ossetia and strong criticism of Russia’s peacekeepers by western media – have seriously expanded political and military risks of country. Russia’s very own investment appeal suffered badly, due to background of Georgia-South Ossetia conflict. Western investors hurry to get their funds off Russia’s assets. The resulting RTS lost -4.5% in just 30 minutes after the trades began, sliding below 1650 points. However, then the news on cease-fire agreement signed by Georgia came up, making a range of stocks rise throughout the market. Among various sectors we would like to point out the stocks of Uralkali, adding +5.1%, whilst backed by news on positive RAS report: net income rose 2.2 times versus last year. Aside of that – Sberbank’s quotes have also added weight, although no important news regarding Sberbank appeared yesterday, hence – we could say that bank’s stocks are compensating for almost a -8% last week’s fall. More to that – throughout the day the stocks of WTI oil brand rose up, backed by fears regarding troubles with delivery of oil off Caspian region, positive reflecting upon the quotes of oil & gas companies. The mentioned issues have all proved to bring a positive support for RTS, as index finally entered the positive zone yesterday.
RTS added +1.18% yesterday, totaling 1742.96 points. Index has been supported by stocks of Gazprom (+5.64%), Sberbank (+5.22%) and LUKOIL (+3.15%). Some negative pushing over RTS has been made by stocks of NOVATEK (-4.26%) and Norilsk Nickel (-4%).
RTS classic turnover has formed 55.0 mn USD. Market’s turnover leaders of Tuesday: Gazprom (18.5 mn USD), Sberbank (10.6 mn USD) and Rosneft (9.7 mn USD).
Situation over the market remains quite instable. On one hand – we have positive backing by sound dynamics of European grounds, on par with growth of US indices futures quotes due to forecasts of commodities companies’ expanded incomes. However – the tense situation in Caucasus region and possible prolongation of confrontation is likely to become the primary factor to determine investment appeal of Russian market for investors. Thus – we see the negative vector of RTS movement as most likely to happen.
Main Russian Stocks events
Uralsvyazinform’s 1H 2008 results.
Uralsvyazinform’s revenue under RAS 1H 2008 report increased by 5.2%, to 20 bn RUR. Company’s net income decreased by 27.5% and reached 1.6 bn RUR.
Other Russian Stocks news
MTS’ US GAAP report.
Today, MTS plans to publish its financial results under US GAAP report. We expect that quarter revenue growth will form 8%, coupled by a slight fall of OIBDA margin.