Cheap and vulnerable. With what the Russian stock market approached 2022

The events around Ukraine and the growth of tension spoiled the end of the year Russian investors. But analysts of the two largest domestic investment banks - Sbercib and VTB Capital - look positively at the prospects of the Russian market. We tell the main one of their strategies in the 2022th.

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Results and forecasts from Sbercib

The Russian stock market is approaching 2022 with increased geopolitical risks that significantly reduced profitability in the last quarter, Sbercib analysts write - their strategy for institutional investors was published on December 23.

In the fourth quarter, the RTS index fell by 13% - this is one of the worst indicators in the world and worse than other developing markets. Investors laid in prices the probability of imposing new sanctions. But according to the results of the year, the Russian stock market still shows a high relative to many other developing markets, and the bank analysts say.

Nevertheless, in the last quarter, the market fell to the lowest multiplier levels since 2014, remaining one of the most underestimated in the world:

• The ratio of the price expected in the next 12 months of profit is 5.5 (which implies a discount of 55% compared to other EM);
• Risk Primia (Equity Risk Premium, or ERP-a bonus that investors require investments in the action)-9%;
• The dividend yield expected in the next 12 months is 10% per annum.

Typically, such a low level persists for only a few weeks, Sbercib analysts write. In their basic scenario, the factor of “political uncertainty” will be less affected by the market: the Target on the RTS index at the end of 2022 is 2050 points, which implies an upsade at 29% of the current levels.

If it were not for geopolitical risks, this forecast could be called conservative - taking into account the fact that in the conditions of growth in the rates the cyclic sectors and shares of value, as expected in Sbercib, will show a leading profitability around the world. The basic forecast of investment bank: lack of sanctions, the continuation of the dialogue between Russia and the USA, but without breakthroughs.

An important driver for the growth of markets next year will be a general favorable macroeconomic situation that will increase expenses, the report says: according to the bank’s forecast, the Russian economy will grow by 2.9% of the year in 2022 (for comparison, the world - by 4.9%), inflation will begin to slow down in the second quarter The second half of the year after 1-2 raises of the key rate at the beginning of the year.

The oil market will move from a state of deficit to a balanced demand and offer - taking into account the slowdown in economic growth and increase in proposal. According to the forecast, Brent barrels will be in the range of $ 70–80. The risks for forecast are associated with raising bets in the United States and an increase in proposal by OPEC+members.

What to put to investors: recommendations sbercib

1. Eurobonds

Geopolitical news led to an increase in the profitability of sovereign Eurobligations with repayment in 2023–2027 by 60–100 basic points (b.), More long -term - by 15–25 b. n. Spirit in relation to the comparable Eurobonds of developing countries at the short end of the curve grew to 20 b. n., while on a long one - remained unchanged.

Macroeconomic policy continues to remain conservative. The budget surplus will increase from 0.1-0.4% of GDP this year to 1% in the following. An increase in the threshold of liquid reserves of the Federal Tax Service from 7% to 10% of GDP in November, beyond which you can invest money within Russia, will limit the costs.

Sbercib is advised to buy state Eurobonds with repayment in 2023, 2026 and 2027: they will benefit from reducing the geopolitical award, as well as an additional influx of funds as a result of high gas prices.

Among corporate Eurobonds with strong fundamental indicators and an attractive ratio of profitability and risks, analysts advise taking a closer look at Veon's papers (with repayment in 2025) and Alrosa (2024).

2. Ruble bonds

Due to the growth of inflation and geopolitical tension in the fourth quarter, the OFZ retroactive curve rose and became more inverted: the yields of bonds with a period of less than 5 years increased by 150–160 b. n., longer issues - 90–130 b. Non -residents sold bonds from the beginning of the quarter by 150 billion rubles, their share in OFZ has decreased to a minimum since July.

In the basic script, the curve will become even more inverted due to the expectations of the further rise of the key rate, so investors should avoid long-term issues, Sbercib analysts noted earlier. They advised to buy short corporate bonds and papers with a floating coupon (flower) series 29013–29020, since inflation data and inflationary expectations have not yet improved. A positive trigger may be the news that the Ministry of Finance will redeem these issues if inflation accelerates, the possibility of which the ministry spoke earlier.

3. Promotions

Prosclic conditions and growth of bets are obvious drivers for shares in the financial sector. During the last correction, he became the most victims, but in the event of a decrease in political tension, he can recover faster, the report said.

Also, analysts positively look at promotions from cyclic sectors (less confidence - in the metallurgical sector), but growth shares, more sensitive to growth in bets, will lose to the market.

Top ideas of the bank in the Russian market:

• Gazprom is the main beneficiary of the growth of gas prices. Free cash flow (FCF) in 2021–2022 will be 40% of all market capitalization. According to the forecast, according to the results of 2021, the company will pay 52 rubles per share in the form of dividends (four times more than a year earlier), which corresponds to a dividend yield of 16% per annum, according to the results of 2022-60 rubles (19%).
• "Lukoil." Analysts note high FCF, dividend profitability and attractive estimates. The recent start of the returns of shares for $ 3 billion should support quotes.
• Segezha is probably a story of growth rather than cost. But analysts like it due to the fact that it refers to the cyclic and non-energy industry and 70% of the company's revenue is exported. Among other factors-the stable growth of EBITDA and revenue, the company also fits into the ESG patch.

Results and forecasts "VTB Capital"

The growth of the Russian market, observed until recently, is primarily associated with the global reflation trend - stimulating the economy through an increase in the money supply. This is stated in the Strategy of VTB Capital dated December 6th.

According to VTB analysts, the world economy is at the beginning of a new business cycle. This is indicated by the fact that the marginality of the EBITDA of world companies has not decreased with the growth of inflation, and consumers in developed countries have enough money to maintain demand.

In general, this should positively affect the cyclic industries and markets, including Russian, while expensive growth actions will lag behind, analysts expect. Their target on the RTS index is 2246 points. Analysts expect that the Russian stock market will bargain with a 7.2 p/e multiplier for 2022. Predictable dividend yield - 10.4%. This follows from another strategy published on the Investbank website on December 15.

VTB Capital analysts increased the recommendation on Russian actions with “Keep” before “Buy”, noting:

• Favorable conjuncture in the raw materials markets. The forecast of the average Brent oil price is increased from $ 64 to $ 72 per barrel in 2022, long -term - from $ 57 to $ 62. The lack of investments in the oil industry will lead to a lag of proposal from growing demand;
• The relative underestimation of the Russian market, which makes it less vulnerable to the growth of bets compared to other countries;
• The fact that the geopolitical prize is already taken into account in quotes. Additional geopolitical risks in VTB are not expected;
• A high -relative dividend yield on other markets, which can attract international investors in the spring, when companies announce recommendations on dividends.

What to put to investors: recommendations "VTB Capital"

VTB prefers low debt companies due to expectations of growth in bets, as well as sectors oriented to the domestic market-analysts are waiting for the ruble to strengthen up to 68 per dollar. In the document dated December 6, they also recommend cyclic sectors - oil and gas, metallurgical and transport.

Recommendations for sectors set forth in a later strategy look like this:

1. Oil and gas sector

High oil prices and an increase in production by 8% should lead to a strong free cash flow and double -digit dividend yield. Top ideas of the bank in this sector:

• Rosneft: The growth drivers of shares can be the development of gas fields, a possible announcement of the results of the drilling program on the East Oil project and the involvement of new shareholders into it.
• “Lukoil”: high -quality dividend history, but there is a risk of reducing the dividend coefficient.

2. Gas sector

VTB predicts that gas prices in Europe will remain high in winter, and the low level of reserves in gas storages in Europe will support prices in the second and third quarters. However, in the case of the launch of the Northern Stream - 2, as well as liberalization of gas exports, prices may decrease. The main ideas of the bank in this sector:

• Gazprom - due to high dividend profitability (14.7–16% in 2021–2022).
• Novatek - the company has several strategic projects that will expand the growth profile in the medium term, and carbon capturing projects take into account environmental trends.

3. Metals and prey

In this sector, investors should especially take into account the trends associated with the Green Economy and ESG. Analysts have become a neutral attitude to the sector in general. Top ideas in the sector:

• Rusal: The company is the beneficiary of these trends, since it already has a relatively low carbon trace due to the consumption of hydroelectricity. In addition, the company plans to divide assets by the level of carbon trace. The company with a low level of carbon trace will be more attractive to international ESG-investors, and a cross-border carbon tax will be less affected by it.
• “Evraz”: the allocation of coal assets (91% of the shares of “Department of Disfonks”) will attract ESG-investors.

All ideas from different sectors are in the table:

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