Bloomberg News

Gazprom Gains as Ruble Selloff Attracts BofA: Russia Overnight

February 06, 2014

OAO Gazprom (OGZPY:US), the world’s biggest producer of natural gas, rose to a one-week high in New York as Bank of America Corp. (BAC:US) recommended investors buy Russian exporters as the ruble slumps.

American depositary receipts of Gazprom, Russia’s gas-export monopoly that trades at the cheapest valuation among global peers, gained 2.8 percent to $8.36, the biggest advance in two weeks. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. rebounded from a five-month low, jumping 2.1 percent. Futures expiring in June on Moscow’s dollar-denominated RTS Index added 0.6 percent to 134,070 in U.S. hours.

The ruble, which appreciated against the dollar yesterday as investors unwound bets against the currency, is still down 5.1 percent this year amid a selloff throughout emerging markets. Those declines are swelling exporters’ local-currency proceeds from overseas sales and bolstering profit margins for Russian exporters including Gazprom, steelmaker OAO Severstal and diamond producer OAO Alrosa, Bank of America said in a report yesterday.

“Export-oriented companies should post better earnings,” Vladimir Osakovskiy, chief economist for Russia at Bank of America, said by phone from Moscow yesterday. “Russia’s economic growth will accelerate this year and next because the weaker ruble will have a positive impact on exports and helps headline gross domestic product.”

Russia’s economy will grow 2.5 percent in 2014 after expanding 1.3 percent last year, Bank of America predicts. That compares with a 2014 growth projection of 1 percent for the euro area.

Price Estimate

Bank of America reiterated its buy recommendation on Russia’s biggest oil companies, including OAO Rosneft, OAO Lukoil, OAO Gazprom Neft and preferred stocks of OAO Surgutneftegas, according to the report.

Gazprom’s Moscow-listed stock increased 1.2 percent to 143.62 rubles, or $4.14, yesterday. The stock’s 12-month price estimate at 194.55 rubles implies a 35 percent surge, according to the mean of 35 analyst estimates compiled by Bloomberg. Gazprom tumbled 28 percent over three years through 2013. It trades at 2.7 times reported earnings, the lowest multiple among 15 global producers.

Natural gas, which along with crude oil provides about half Russia’s budget revenue, is up 17 percent this year on the New York Mercantile Exchange. Gazprom will be a “key beneficiary” of the price increase, Bank of America said. Strengthening demand in Europe, which gets a quarter of its gas from Gazprom, drove shipments to a record last year, the company said in a Jan. 23 statement. Exports to Europe this year may hold at the same level, the company said.

China Contract

Gazprom will probably clinch a deal this year to supply as much as 38 billion cubic meters of gas to China from 2018, concluding more than 15 years of talks, Gazprom Deputy CEO Alexander Medvedev said Jan. 29. China’s appetite for natural gas will double by 2018 as the world’s biggest energy consumer seeks to replace dirty coal-burning power plants, International Energy Agency forecasts show.

West Texas Intermediate crude for March delivery fell 0.1 percent to $97.71 per barrel in New York today, heading for the first decline in four days. Brent for March settlement gained for a third day, rising 0.2 percent to $107.35 a barrel on the London-based ICE Futures (VEA) Europe exchange at 10:44 a.m. Hong Kong time.

Ruble futures expiring next month showed the currency declining 0.5 percent against the dollar in U.S. hours. The ruble gained 0.6 percent to 34.6940 per dollar and strengthened 0.3 percent to 40.3082 against the dollar-euro basket used by the central bank to manage swings that erode exporters’ competitiveness during U.S. hours yesterday.

ETF Advances

The RTS Volatility Index, which measures expected swings in the stock futures, declined 7.5 percent to 20 yesterday. The Market Vectors Russia ETF (RSX:US), the largest exchange-traded fund dedicated to Russian equities, rose 1.9 percent to $25.85 in New York.

Yandex NV (YNDX:US) jumped 5.4 percent to $38.64 in New York yesterday, the biggest increase since October. Bank of America reiterated its recommendation to buy Yandex and competitor Mail.ru, while keeping a neutral rating on CTC Media Inc. (CTCM:US), Russia’s only traded television company.

CTC Media rose 2.9 percent to $11.46 in New York yesterday, trimming its decline this year to 18 percent. The stock increased 79 percent last year and was the biggest gainer among Russian equities traded in New York after Yandex, which doubled in 2013.

United Co. Rusal, the world’s largest aluminum producer, added 0.4 percent to HK$2.69 in Hong Kong trading today. The MSCI Asia Pacific Index advanced 0.9 percent.

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

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • OGZPY
    (Gazprom OAO)
    • $6.24 USD
    • -0.04
    • -0.56%
  • BAC
    (Bank of America Corp)
    • $17.11 USD
    • 0.01
    • 0.06%
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