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Russian Market - report from the scene
  • Are Russian Gas & Oil Producers really undervalued? 1 comment
    Nov 10, 2010 7:00 PM | about stocks: RSX, OGZPY, LUKOY, RNGZY
    The 4 largest publicly-listed Russian Oil and Gas Producers included in RSX portfolio: OTCPK:OGZPY (7.67%), OTCPK:LUKOY (7.52%), OTCPK:SGTPY (5.38%), and RNGZY.PK (7.76%).
    The average P/E of presented Russian companies is equal approximately 5-6 (weighted by market cap). Is it very attractive? I don't think so.
    When you invest to emerging you get more risk (it's generally accepted idea). If you get more risk be sure that risk reward is really adequate. 
    Modern finance theory identifies two components to asset returns: a systematic (oil, gas, gasoline prices; world consumption and supply energy resources, phase of business cycle etc...) component and a nonsystematic, or idiosyncratic, component (regional economy environment, country's/region's monetary and fiscal/taxes policies, cost of mining, etc... for example).
    Assume that government bond yield is some measure of region's idiosyncratic risk. And let's compare some well known companies with more then $50 billion market cap by P\E ratio. 
    We use current stock prices, divided by forecast earnings per share (that well known as P/E ratio). But also we multiply this value by relevant bond yield rate. Thus we get some relative index, which could help us to compare companies from one region with companies from another regions.
    A lower value indicates that company is undervalued then other.
    So, what should we see? Emerging markets have higher P/E - bond yield ratio then developed. And Russian companies are not outstanding ones on rest emerging background. Of course OTCPK:OGZPY looks undervalued, little bit. But the prospective payoff is approximately 30-50%. Also OTCPK:SGTPY is likely little bit less then other companies. But basically Russian Oil & Gas industry have the same valuation that emerging.

    Related ETF: Market Vectors-Russia ETF (RSX)

    Disclosure: hold OGZPY.PK, LUKOY.PK, SGTPY.PK, and RNGZY.PK
    Stocks: RSX, OGZPY, LUKOY, RNGZY
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  • Bond yields of the developed countries are poised to go up substantially in the next 3-5 years, irrespective of their AAA+ ratings. This is our new normal.
    25 Nov 2010, 05:03 AM Reply Like
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