Т Medvedev''s Cabinet suffers first departure
Т Economy slows sharper than expected; could be temporary
Т Sberbank and Bank St. Petersburg place subordinated bonds
Т Bank Vozrozhdenie and Bank St. Peterburg report 9M12 RAS net profit
Т Polymetal posts 3Q12 trading update, announces new dividend policy
Т Decision on Telenor-Weather deal postponed until 27 November
Т Sistema finishes buyback programme; India exit could be catalyst
Т Phosagro acquires 24% of Nordic Rus Holding
Reports
Т Equity strategy 4Q12: volatile with an upward trend http://research.otkritie.com/en/all_reports/index.php?id4=5685&page4=1
Т Rosneft: Seeking to consolidate 100% of TNK-BP? http://research.otkritie.com/en/all_reports/index.php?id4=5684&page4=1
Т O''Key Group: Model update; downgrade to a HOLD on valuations http://research.otkritie.com/en/all_reports/index.php?id4=5683&page4=1
Medvedev''s Cabinet suffers first departure
Yesterday (17 October) the Kremlin''s press service reported that President Putin signed a decree relieving Regional Development Minister Oleg Govorun from his duties and appointing Igor Slyunyaev as the new minister. This is the first dismissal in Medvedev''s Cabinet and comes less than five months after its formation. The news is likely to be presented by the Kremlin as a "lesson" to other ministers but de facto it demonstrates the weakness rather than the strength of the Cabinet.
Govorun was one of the three ministers publicly reprimanded by the president last month for failing to make progress in reaching development goals set in the May presidential decrees. According to Russian press reports, the real reason for his dismissal was his poor performance as a head of a government commission set to overcome the consequences of major flooding in the south of Russia this summer. Immediately after Putin''s criticism Govorun took medical leave and it has been widely reported that he would file a letter of resignation to the Kremlin.
Slyunyaev has a long service record in Russian bureaucracy - from police to Deputy Transport Minister. He is a member of the United Russia party and his last post was governor of the Kostroma region, which he left in April 2012. He is likely to keep a low profile in the Cabinet as a pro-Kremlin technocrat.
In other political news the Russian Investigative Committee announced yesterday that it has initiated a criminal case against one of the most radical and prominent leaders of the anti-Kremlin opposition, Sergei Udaltsov, for staging mass unrest. The case is based on a documentary that was shown on Russian TV couple of weeks ago.
Vladimir Tikhomirov
vladimir.tikhomirov@otkritie.com
Economy slows sharper than expected; could be temporary
Last monthаs economic activity in Russia slowed more than we expected, according to a monthly statistical report from Rosstat. However, two factors indicate that this could be a temporary phenomenon. One is seasonality: there were two less working days last month than in September 2011. The other is the "end-of-the-year effect" when completion of large projects in investment, construction and industry areas toward the yearаs end boost overall output. It is impossible to accurately forecast the effect of the latter factor.
In September 2012 fixed investment posted its first YoY decline (-1.3% YoY) since March 2011. While this was below even our out-of-consensus conservative estimate (+0.3%), we believe that the main reason behind the decline was seasonality. Growth in real incomes slowed to 3.8% YoY from 7.2% in August as higher inflation and a lack of major wage hikes in the public sector started to eat into people''s earnings. The retail sales growth rate remained at the same level (4.4% YoY) as in August, as did the unemployment rate (5.2%). Construction activity contracted by 5.6% YoY while agricultural output fell by 7.7% YoY.
Given the seasonality factor we consider these statistics neutral rather than disappointing. The slowdown in economic activity in 2H12 was fully expected; however, we think that chances still remain high that the economy will manage to gain pace during 4Q12. We reiterate our out-of-consensus optimistic GDP growth forecast at 3.9% YoY for FY12.
Vladimir Tikhomirov
vladimir.tikhomirov@otkritie.com
Sberbank and Bank St. Petersburg place subordinated bonds
BSPB RM, Hold, TP $2.3
SBER RU, Buy, TP $4.5
Event: Sberbank is tapping the market to raise $2bn in 10-year subordinated debt, news wires reported yesterday (17 October). In a similar vein, Bank St. Petersburg raised $100mn in 6-year subordinated bonds (yielding 11%).
View: Long-term subordinated debt is a viable source of Tier-2 capital and also counts toward Russia''s main regulatory ratio, N1. While equity markets are difficult to tap for mid-tier banks (as Promsvyazbank''s IPO attempt showed), and Sberbank placed its $5bn SPO only recently, thereby satisfying demand for its equity, investor appetite for bonds is booming in all sectors, with subordinated debt particularly interesting for private banking mandates. Therefore, it is not surprising that banks are using this window to boost their Tier-2/N1 capital base. Sberbank''s N1 CAR was at 12.1% as of 9M12, and the subordinated bonds will raise it to 12.6%, we estimate, while total CAR will reach 15.8% for 2012E. Similarly, Bank St. Petersburgаs N1 will increase from 11.7% to 12.6%, while total CAR will go to 13.7%, from 12.9% (based on 1H12 RWA).
Vladimir Savov
vladimir.savov@otkritie.com
Bank Vozrozhdenie and Bank St. Peterburg report 9M12 RAS net profit
VZRZ RM, Buy, TP $36.0
Event: Bank Vozrozhdenie posted RUB0.7bn of RAS net profit for 3Q12, bringing 9M12 RAS profit to RUB1.9bn (up 57% YoY). Similarly, Bank St. Petersburg reported RUB0.7bn of RAS net profit for 3Q12, bringing its 9M12 net profit to RUB0.9bn (down 74% YoY).
View: Keeping track of the RAS financial reporting of Bank Vozrozhdenie and Bank St. Petersburg makes sense, as they each operate with one main entity ж hence, IFRS consolidated numbers are a lot closer to the RAS reporting, compared to those of Sberbank and even more so to VTB (which consolidates several large separate banks). At Bank Vozrozhdenie, we observe stable progress toward improving profitability for several quarters in a row, as the bank''s exposure to the growing segment of the market (retail, SME), and its receding funding costs ж thanks to good access to retail deposits ж is likely paying off with widening NIM. Our FY12E IFRS forecast of RUB2.6bn appears fully feasible, we think.
As for Bank St. Petersburg, we note a dramatically better quarterly profit, compared to a very weak 1H12, which generated only RUB0.15bn of net profit in total. This suggests that the main drag on the bottom line from the previous three quarters, high provisioning, is starting to recede, as the problem loans revealed in 4Q11-1Q12 have now been fully provisioned. Our FY12E net profit forecast under IFRS is RUB2.2bn.
Valuation and action: We continue to like Bank Vozrozhdenie, as its business model makes it more resilient in the current environment of tight funding. It also enjoys higher capital adequacy relative to Bank St. Petersburg ж 1H12 Tier-1 CAR of 11.6% vs 9.3%, respectively. However, we notice that Bank St. Petersburg may have indeed turned the corner from poor financial performance. Helped by a boost of capital (through subordinated bonds, see our daily story бSberbank and Bank St. Petersburg place subordinated bondsв), it could make efforts to reverse the erosion of its market share in St. Petersburg. Nevertheless, the environment is challenging for Bank St. Petersburg, which relies more heavily on corporate lending, wholesale funding, and operations with securities. We maintain our HOLD rating.
Vladimir Savov
vladimir.savov@otkritie.com
Polymetal posts 3Q12 trading update, announces new dividend policy
POLY LN, Buy, TP GBp1,160
Event: Polymetal released its 3Q12 and 9M12 trading update yesterday (17 October), with quarterly gold equivalent production reaching an all-time high of 317 koz (+48% YoY and +7% QoQ). In 3Q12, Polymetalаs gold production amounted to 197 koz (+77% YoY). Silver output was 7.6 moz (+61% YoY). The company reported that an increase in production was driven by continued strong production growth at Omolon, further progress at Albazino-Amursk, and improved grade profile at Khakanja. Based on the strong performance already achieved, the company has revised its FY12 production guidance to 1,050 koz of gold equivalent, which is in line with our forecast, and up from the original guidance of 1,000 koz.
The 2012-2013 production guidance was revised cumulatively down by 50 koz of gold equivalent (~2%), mostly due to the delay in the expected commissioning of the Mayskoye concentrator (it is worth noting that this delay was expected by the market). In 2013, Polymetal expects to produce ~1,200 koz of gold equivalent, including 760-800 koz of gold and 23-24 moz of silver and 5-6 kt of copper. This new guidance is 4% below our expectations.
A positive surprise is that the Board of Directors has approved changes to the company''s dividend policy, raising the minimum payout ratio to 30% of net earnings (provided that the net debt/adjusted EBITDA ratio does not exceed 1.75), introducing interim dividends, and instituting a special dividend to be considered at the end of each financial year.
Polymetalаs revenue was $530mn in 3Q12, and $1,283mn in 9M12. Given the companyаs new production guidance, our FY12 forecast for gold revenues of $1.8bn looks achievable.
View: Overall we see this news as positive for the stock, primarily thanks to the new dividend policy.
Denis Gabrielik
denis.gabrielik@otkritie.com
Decision on Telenor-Weather deal postponed until 27 November
VIP US, Hold, TP $12.0
Event: The Moscow Arbitrage Court hearing regarding Telenorаs alleged illegal purchase of VimpelCom shares from Weather last February finished yesterday (17 October), with the court deciding to postpone the final decision until 27 November. Meanwhile, Telenor has requested that the proceedings be terminated on the grounds that VimpelCom Limited has a different jurisdiction than the Moscow Arbitrage Court.
View: The decision to postpone the final verdict is very much expected in our view and thus is neutral for VimpelCom for now. We think that the verdict will depend on whether Altimo, Telenor and the Federal Antimonopoly Service (FAS) will be able to reach an amicable agreement before 27 November. Note that the court will consider lifting the ban on the payment of dividends on 12 November. This could be a catalyst for the stock, although the maximum dividend yield, including the 2012 interim dividend, is likely to be limited to 6-7%.
Valuation and action: VimpelCom traded flat yesterday. We reiterate our HOLD rating for VimpelCom.
Alexander Vengranovich
alexander.vengranovich@otkritie.com
Sistema finishes buyback programme; India exit could be catalyst
SSA LI, Buy, TP $31.3
Event: Yesterday (17 October) Sistema announced that it finished its buyback programme that started on 6 June 2012. As a result of the buyback, Sistema subsidiaries - Sistema Holding Ltd and OJSC Sistema Finance Investments - bought ordinary shares and GDRs in the amount of 1.63% of its share capital. Sistema Holding Ltd now holds 1.42% of the companyаs shares (in the form of GDRs), while OJSC Sistema Finance Investments controls 3.15% of its shares (in the form of ordinary shares).
View: CEO Mikhail Shamolin announced during the 2Q12 results conference call that Sistema could also pursue further buyback programmes. The probability is high, in our view, as we estimate that Sistema spent around $150mn out of the approved $300mn for the buyback. Shamolin also said that Sistema intends to cancel the acquired shares. We reiterate our BUY rating for the stock and think that the key upcoming catalyst for Sistema would be exit from India. In our view it is likely that Sistema will exit from India as Sistema recently demonstrated extensive M&A activity on the Russian railway transportation market, which seems to be the key priority for the company.
Valuation and action: The stock trades at a 44% discount to its market NAV.
Alexander Vengranovich
alexander.vengranovich@otkritie.com
Phosagro acquires 24% of Nordic Rus Holding
PHOR LI, Buy, TP $13.4
Event: PhosAgro has announced that it has acquired 24% of the shares of Nordic Rus Holding for a total consideration of $31.76mn. Nordic Rus Holding owns 7.73% of the authorised capital of Apatit (10.30% of the companyаs ordinary shares). Nearly 75% of Nordic Rus Holding shares are owned by Phosint Limited, in which PhosAgro owns a 49% stake.
View: We estimate that as a result of this deal, Apatit was valued at a price of $207/ordinary share, which is in line with the price achieved at the tender for the governmentаs stake - after this acquisition Phosagro controls ~82% of Apatit. We note that PhosAgro plans to accumulate 95% of Apatit and conduct a squeeze out.
Denis Gabrielik
denis.gabrielik@otkritie.com
