Bloomberg News

Lukoil Premium at 9-Week High as Crude Soars: Russia Overnight

February 24, 2012

Feb. 24 (Bloomberg) -- OAO Lukoil jumped in New York, pushing its premium over Moscow stock to the most in nine weeks, as signs U.S. and European economies are reviving drove Urals crude to the highest level in more than three years.

American depositary receipts of Lukoil, the nation’s biggest non-state oil producer, gained the most in a week yesterday, trading 1.6 percent higher than shares listed on Russia’s Micex Index as markets in Moscow shut for a holiday. Futures expiring in March on Moscow’s dollar-denominated RTS Index fell 0.2 percent to 163,415 in U.S. trading.

Urals, Russia’s chief export blend and biggest export earner, surged to the strongest level since July 2008 and crude in New York jumped to a nine-month high as U.S. jobless claims stayed at a four-year low and German business confidence exceeded estimates, tempering the outlook for a global slowdown. Lukoil, which got more than 80 percent of its revenue from international sales in the third quarter, has climbed 15 percent in New York this year, as Urals gained 18 percent.

“Investors have more confidence in the stronger-for-longer oil thesis and see recent gains in oil as a result of fundamental supply constraints rather than temporary geopolitical issues,” Yan Gloukhovski, a trader at Alfa Capital Markets in London, said by e-mail yesterday. “The strength in equities was mainly driven by oil names.”

The Bloomberg Russia-U.S. 14 index of Russian companies traded in the U.S. rose for the first time in three days, adding 0.8 percent to 108.84 yesterday. The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, rose 1.1 percent to $31.81, climbing the most since Feb. 13.

Falling Volatility

The RTS Volatility Index, which measures expected swings in the index futures, declined 1.6 percent to 30.65 yesterday. The 30-stock Micex index dropped 1.3 percent to 1,538.17 on Feb. 22, the most since Dec. 21.

Lukoil ADRs gained 1.8 percent to $61.05 in New York yesterday, boosting the premium to the most since Dec. 21, when it was 1.8 percent. One ADR represents one ordinary share. Lukoil fell 3.2 percent to 1,778.90 rubles, or $60.10, in Moscow on Feb. 22.

ADRs of OAO Gazprom, the world’s biggest natural gas producer, rose 1.2 percent to $12.74 yesterday, swelling its premium over the company’s Moscow-listed shares to 0.8 percent, the most since Feb. 3. Gazprom fell 0.9 percent to 187 rubles, or the equivalent of $6.32, on Feb. 22. One Gazprom ADR represents two ordinary shares.

Gazprom trades at a price-to-earnings ratio of 3.47 in Moscow, compared with 4.15 for Lukoil and 5.81 for London-based oil company BP Plc, data compiled by Bloomberg show.

Gazprom ‘So Cheap’

“Gazprom is just so cheap,” Arjun Jayaraman, who manages $400 million in emerging-market equities at Causeway Capital Management in Los Angeles, said by phone yesterday. Causeway owns Russian energy stocks including Gazprom and Lukoil, he said.

Crude oil for April delivery gained 1.5 percent to $107.83 a barrel on the New York Mercantile Exchange yesterday, the highest settlement price since May 4. Brent oil for April settlement increased 0.6 percent to $123.62 on the ICE Futures Europe exchange in London. Urals surged 1.5 percent to $124.03.

OAO Surgutneftegas ADRs rose 0.8 percent to $6.49 in U.S. trading, after its preferred shares in Moscow gained on Feb. 22, increasing 0.7 percent to 19.21 rubles, or 65 U.S. cents. One ADR equals ten ordinary shares.

Russia’s 30-stock Micex index trades at six times analysts’ earnings estimates for member companies, compared with 10.7 for the MSCI Emerging Markets Index of developing-nation stocks. Brazil’s Bovespa index trades at 10.6 times estimated earnings, while the Shanghai Composite Index trades at 10 times and the BSE India Sensitive Index has a ratio of 16, according to data compiled by Bloomberg.

‘Risk-on Environment’

“This year it’s been a risk-on environment and Russia has benefited from it,” Jayaraman said. “As long as we remain in an environment where there is no bad news coming out of Europe, Russian equities should be doing fine.”

Applications for jobless benefits in the U.S. were unchanged last week at 351,000, the fewest since March 2008, the Labor Department reported yesterday. The German business climate index climbed to 109.6 in February, according to the Munich- based Ifo Institute. Economists predicted an increase to 108.8, according to a Bloomberg survey.

Yandex NV, Russia’s most popular Internet search engine, gained in New York yesterday after its 12-month target price was raised to $38 from $37 by Deutsche Bank AG. Deutsche analyst Jeetil Patel reiterated a “buy” recommendation on the stock.

Goldman Target

The U.S.-traded shares were also raised to “hold” from “sell” and the target price boosted to $23.90 from $21.10 by Renaissance Capital in Moscow. Yandex will probably increase ruble-denominated revenue by 45 percent in 2012, compared with the 41 percent growth rate expected earlier, Renaissance analysts wrote in a research note.

Yandex gained 1.5 percent to $22.97 in New York yesterday, bringing this year’s increase to 17 percent. The company has its chief share listing on the Nasdaq Composite Index. The stock has slipped 49 percent from a May initial public offering last year.

Goldman Sachs Group Inc. also raised its price target for Yandex yesterday, to $29.60 from $28.80.

--Editors: Marie-France Han, Emma O’Brien

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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