Options traders are making the most bullish bets on Yandex NV since Russia’s top search engine first sold shares nine months ago on speculation rising online advertising growth will bolster company revenue.
The ratio of outstanding call options to buy Yandex’s U.S.- traded shares versus puts to sell jumped to a record 3.15-to-1 on Feb. 24, data compiled by Bloomberg show. Futures (VEA) expiring in March on Moscow’s RTS Index rose 5.4 percent to 172,585 in U.S. trading on Feb. 24. Yandex gained 2.9 percent last week.
Sales will jump as much as 45 percent in 2012, following a 60 percent advance last year, Chief Financial Officer Alexander Shulgin said on a conference call on Feb. 22 after Yandex reported that fourth-quarter adjusted net income surged 50 percent to 2.2 billion rubles ($75 million). Internet ad spending climbed the most of all advertising in Russia last year, growing 56 percent to 41.8 billion rubles, according to the Association of Communication Agencies of Russia.
“Online advertising sales have a huge growth potential in the Russian market,” Anna Lepetukhina, an analyst at Troika Dialog who has a “buy” rating on the company, said by phone from Moscow on Feb. 24. “Yandex has excellent prospects and a fast sales-growth rate, right now it is undervalued.”
The Bloomberg Russia-US 14 Index (RUS14BN) of Russian companies traded in New York rose 4 percent to 113.24 on Feb. 24, bringing its weekly gain to 3.8 percent.
The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, rose 4.1 percent to $33.13, the highest closing price since September 2011, data compiled by Bloomberg show. The fund gained 4 percent last week and is up 24 percent this year, compared with a 3.4 percent gain in the same period a year ago.
March $24 Calls
The fastest growing bets among all Yandex options contracts over the past two weeks are March $24 calls, which expire in less than three weeks. Yandex last closed above that strike price, 5.7 percent higher than what the shares traded at on Feb. 24, on Nov. 15, data compiled by Bloomberg show.
Options are contracts that give the right, though not the obligation, to buy or sell a security at a set price and date. Calls give the right to buy a security for a certain amount, the strike price, by a set date. Puts convey the right to sell.
Investors use options to guard against fluctuations in the price of securities they own, to speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.
Shares of Yandex fell 1.2 percent to $22.70 on Feb. 24, bringing the decline since its May listing to 42 percent. Troika has a $38.50 price target for Yandex.
‘Better’ Than Mail.ru
The company saw its share of the Russian search market drop to 59.6 percent in January, compared with a three-month average of 59.9 percent, according to Liveintenet.ru, an Internet- service provider and researcher. The market share of Mail.ru Group Ltd. (MAIL), the largest Russian-language Internet company and an investor in Web companies including Facebook Inc. and Groupon Inc., rose to 8.5 percent from a three-month average of 8.4 percent, the data showed.
Yandex is a “better option to gain exposure to the Russian Internet market than shares of Mail.ru Group, which could be subject to volatility due to its considerable exposure to Facebook,” analysts at UralSib Financial Corp. in Moscow, led by Konstantin Chernyshev, head of research, wrote in a Feb. 22 note.
Mail.ru soared to a 13-month high on Feb. 24 after reporting a tripling in second-half net income and forecasting margins of 50 percent this year. The company’s Global Depositary Receipts are up 47 percent in 2012, the best start to a year since the stock started trading in November 2010.
The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, declined as much as 10 percent to 27.56 on Feb. 24, the lowest level since Aug. 3. The index settled at 29.38, down 4.1 percent from the previous close and 4.9 percent lower from the previous week.
Urals crude, Russia’s chief export blend and biggest export earner, surged 0.8 percent to $124.99 per barrel on Feb. 24, the strongest level since July 2008.
Crude oil for April delivery rose 1.8 percent, to $109.77 on the New York Mercantile Exchange on Feb. 24, the highest settlement since May 3 and completing the longest rally since January 2010 as escalating tension with Iran threatened supplies. Futures dropped 0.3 percent today to $109.46 a barrel.
Brent oil for April settlement gained 1.5 percent to $125.47 on the London-based ICE Futures Europe exchange, the highest close since April.
The MSCI Asia Pacific Index, a gauge of stocks in the region, fell 0.2 percent today as higher oil prices raised concern higher energy costs will weigh on economic growth. United Co. Rusal (486), the world’s largest aluminum producer, rose 2.3 percent to HK$6.72 in Hong Kong trading as of the city’s midday break.
OAO Surgutneftegas’s (SGTPY) ADRs rose 6.8 percent to $6.93 in U.S. trading on Feb. 24, the highest level since November 2007. The Russian oil company’s stock was the biggest gainer on the Bloomberg Russia-US 14 (RUS14BN) measure last week, advancing 7.4 percent. Preferred shares on Moscow’s Micex Index increased 6 percent on Feb. 24 to 20.373 rubles, or 70 U.S. cents. One ADR equals ten ordinary shares.
Russia’s 30-stock Micex trades at 6.2 times analysts’ earnings estimates for member companies, compared with 10.9 for the MSCI Emerging Markets Index (MXEF) of developing-nation stocks. Brazil’s Bovespa (IBOV) index trades at 11.6 times estimated earnings, while the Shanghai Composite Index (SHCOMP) trades at 10.2 times and the BSE India Sensitive Index (SENSEX) has a ratio of 15.8, according to data compiled by Bloomberg.
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