Rosneft overtook Sberbank and became the most valuable company in Russia. What to invest in now?

The rise in oil prices and the acceleration of quotes with the help of the announcement of a generous buy-back did not disappoint Rosneft: today, for the first time since 2016, the company has become the most expensive in Russia. But the point is not only that Rosneft has risen in price (by 37.1% since the beginning of the year), but also that the previous leader, Sberbank, has fallen in price by 15.8% over the same time.

• The triumph of Rosneft is explained as follows: yesterday the company confirmed plans to carry out buy-backs worth up to $2 billion by 2020, and today it reported a record quarterly profit, which increased by 20% compared to the previous quarter and amounted to 373 billion rubles. This is more than analysts and investors expected. The companies were helped by rising oil prices, the strengthening of the ruble (72 billion rubles in profit - these are exchange differences) and a one-time income from the purchase of shares in joint companies with ExxonMobil (another 23 billion rubles).
• In total, over six months, Rosneft's net profit almost quadrupled to 351 billion rubles, of which the company, which is usually not particularly generous to shareholders, can give them more than 150 billion rubles in the form of interim dividends. This is more than the state-owned company gave them for the entire last year (111 billion rubles).
• Finally, the long-awaited words of Igor Sechin that the company has completed “major strategic acquisitions” and is now “focused on organic growth and monetization of synergies from acquired assets” should have added optimism to investors.
• But Rosneft would hardly have become the most expensive in Russia if it were not for the fall in the value of the former leader, Sberbank, whose capitalization reached 6 trillion rubles at the end of February. But since then, the shares of the largest Russian bank began to rapidly become cheaper - over the past five months, it has fallen by 27%.
• Sberbank is getting cheaper for two reasons, says Otkritie analyst Timur Nigmatullin — firstly, its interest margin has been declining along with the Central Bank’s key rate, and secondly, Sberbank is getting cheaper due to sanctions, both already introduced and looming on new horizons. Indeed, the bank experienced the sharpest drop (by 20% in just two trading days) after the imposition of US sanctions on April 6.

What do I get from this?

If you are investing in the Russian stock market, the main thing to watch now is the news from the US Congress. If restrictions against Russian banks are included in the new sanctions package, it will be a big blow for the shares of Sberbank (not to mention its business): in the capital of Sberbank, non-resident shareholders account for about 2.5 trillion rubles - more than the amount of funds non-residents in OFZ, notes Timur Nigmatullin. Among the blue chips, he recommends large private exporters Severstal and Lukoil, which benefit from a weak ruble, but are not subject to sanctions pressure.

Irina Malkova, Anastasia Stogney