7/9/98 article. Russian investment opportunities. Tipsheet for Russian stocks
cbs.marketwatch.com
By Margaret Coker, CBS MarketWatch
08:42 PM July 09, 1998
NEW YORK (CBS.MW) -- The following is a list of what analysts say are the companies to avoid and sell in the Russian stock market during the next six months. Avoid the oil sector and buy in autos and telecoms, they say.
For more online research, see the OPM Bank Russian company guide.
Duds
Oil companies, which up until recently have been the darlings of investors, should be left alone until world crude prices pick up from their four-year lows, most analysts said.
Plunging world crude prices are hurting Russia's key energy sector more
severely than many other large oil economies, as high transportation and
production costs and hefty taxes squeeze producers, said Stuart Amor, oil
analyst at CS First Boston in Moscow.
"All Russian
companies are
losing money
on oil exports.
Profit margins
will be
squeezed,
especially for
the oil sector,
until prices go
back up on the
world market."
Stuart Amor
CS First Boston
"All Russian companies are losing money on oil exports," Amor said.
"Profit margins will be squeezed, especially for the oil sector, until prices
go back up on the world market."
Lukoil President Vagit Alekperov said last week his company was losing
more than $5 per ton of oil exported through the Black Sea port
Novorossiisk. This is a bad sign for the rest of the sector, as Lukoil is
widely considered to be among the lowest cost producers, Amor said.
Promising blue-chips
The thin trading prevalent in Russia over the last few weeks has been
focused on eight or 10 major blue chips like United Energy Systems,
the country's electric monopoly; Lukoil, Russia's largest oil company;
Gazprom, the largest natural gas company, and Norelsk Nickel, the
world's largest nickel producer and second-largest platinum producer.
Hot Stocks
UES
Norelsk Nickel
Gaz Auto
Plant
Rostelecom
Vimplecom
Khimprom
Chemboksary
"These are always a good, relatively safe bet for investors because the are
the most liquid, most transparent of the Russian companies," Eastlake
said.
In terms of dollar amounts, UES, Lukoil, Gazprom, regional energy
companies Mosenergo and Irkutskenergo are the most widely held by
foreigners.
"UES was severely hammered by the global financial crisis but appears to
be on the road to recovery," said Mikhail Reznikov, the research director
for OPM Bank.
He also gave a thumbs-up to the producers and suppliers in the auto
industry. Many joint production deals were concluded during the recent
financial crisis, including agreements between the Gaz Auto Plant and
Fiat (FIA).
"Gaz already enjoys popularity with portfolio and direct investors, and its
recent agreement with Fiat has placed it in an enviable position in the auto
sector," Reznikov said.
Another pick by OPM Bank is Pavlovski Avtobus. This company
"should also be one of the industry's leading performers due to good
fundamentals, increasing production, and growing demand," Reznikov
said.
Blue-chips
"are always a
good,
relatively safe
bet for
investors
because the
are the most
liquid, most
transparent of
the Russian
companies."
Philip Eastlake
Deloitte & Touche
Telecoms
The telecommunication sector represents promising, yet challenging
investment opportunities, but it's also a sector that looks to be successful
in the long-term, Hyde said.
The majority of telecoms listed on the Russian markets showed good
financial results for 1997, with profits increasing by 15 percent to 25
percent. The industry as a whole will be facing significant restructuring,
especially as further privatization auctions occur for the country's telecom
holding company, Svazinvest.
Equivalent to the old Ma Bell, Svazinvest attracted more than $1 billion in
investments during the first sell-off of government shares in the company.
George Soros was the main Western investor putting his capital behind
the bid.
This sector also affords investors interested in the Russian economy, but
not in Moscow's trading floors. Rostelecom (ROS), Russia's near
monopoly provider of long distance calls, and Vimplecom (VIP) have
recently received listings on the New York Stock Exchange.
Vimplecom, the first Russian company traded in the United States, enjoys
wide popularity on the NYSE, Hyde said. The market size for
Rostelecom is 20 times greater, which promises more potential for this
firm, he added.
Diamonds in the rough
There are numerous companies in Russia that have enormous potential
and are dominant players in their respective industries. OPM Bank points
to Khimprom Cheboksary, a major player in the chemical and herbicide
industries, as an unpolished diamond ready to shine.
"Khimprom's book value/share stands around $660, yet its price/share is
only $15-20" Reznikov said. "Financial problems were the main reason
for this disparity. However, the company is emerging from bankruptcy,
has paid off a large portion of its debt, and recently entered into a very
promising agricultural project with DuPont (DPMI) regarding plant
protection."
Two big machinery manufacturers, Uralmash and Izhorsk Zavod,
announced Monday that they intend to merge in a stock-swap deal,
details of which will be described during the New York conference on
Wednesday. Hyde said it is "hard to judge" beforehand what this decision
means.
"It has the potential to be a very strong and influential force if the merger is
successful.
Export potential should increase, especially if the merger brings economies
of scale, and new investment is applied toward improving efficiencies and
producing engineering equipment most in demand," he said.
Margaret Coker writes about Russian markets from the Washington
bureau of CBS MarketWatch. |
