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Top 7 Russian value stocks to watch in 2018

We continue our summer series of reviews on stocks that are still promising despite being down significantly over the past 6 months, and today we’ll focus on firms registered in Russia.

In order to make the list, a company needed to have a market cap of at least RUB 10B ($159M) and a P/E ratio that is not less than 2 and not higher than 11. All stocks on today’s list are undervalued or moderately valued, certainly profitable and, in some cases, offer a great dividend payout, so now might be the right moment to take a closer look at them.

The stocks are listed on the Moscow Stock Exchange (MOEX), with some of them being also available on exchanges in London (LSE) and Hong Kong (HKSE). While the symbols used on all related exchanges are provided for each stock, the share price data is always that of MOEX and is shown in rubles (RUR). Each company’s market cap is shown in both rubles and US dollars.

The review is based on data from msn.com/en-us/money/stockscreener.

1. En+ Group

Oleg Deripaska/Tass

  • Symbols: MOEX: ENPL, LSE: ENPL
  • Market cap: RUB 188B ($3.0B)
  • P/E ratio: 3.3
  • Dividend yield: 5.9%
  • 6-month depreciation: –59%

A holding company that manages energy-related assets owned by Russian oligarch Oleg Deripaska, such as 48% of United Company RUSAL (the world’s second-largest aluminum producer), En+ Downstream (which owns and operates two large downstream aluminum plants in Siberia), and EuroSibEnergo (which owns Irkutskenergo and other top-tier power companies that in total control about 8% of Russia’s electricity market). In April 2018, the United States imposed sanctions on him and 6 other Russian oligarchs, barring US citizens from buying or holding shares of companies related to him. This caused the stock’s share price to fall dramatically, making En+ Group the first on this list. The company, however, is quite profitable at its current scale of operation, and, since July, is being reorganized in order to for the sanctions to be lifted. This might happen after Deripaska sells about half of his shares and proves he has no special leverage with the company’s board of directors. As for now, four members proved to have connections with the oligarch have left the board already.

Past performance. The company went public in late 2017, only to see its share price falling twofold in April 2018. Since then, it remains relatively flat, but a low P/E ratio and high dividend yield suggest its fundamentals are more than OK.

Pros. High dividend yield, low P/E ratio, low volatility with no signs of a negative share price trend, proactive attitude toward the US sanctions.

Cons. No significant disadvantages were found.

2. United Company RUSAL

RusAl manufactory/Melangist.ru

  • Symbol: MOEX: RUAL, HKSE: 486
  • Market cap: RUB 363B ($5.8B)
  • P/E ratio: 4.7
  • Dividend yield: 4.8
  • 6-month depreciation: –39%

One of the largest aluminum companies, accounting for almost 9% of the world’s primary aluminum output and 9% of the world’s alumina production. Rusal owns and operates 12 aluminum smelters, 10 alumina refineries, 7 bauxite mines worldwide, and is also engaged in coal and nickel mining. Apart from Russia, the company’s products are sold to the European Union, CIS states, North America and a number of Asian countries. In April 2018, Rusal, together with En+, was sanctioned by the US. The resulting decline in its share price was so dramatically sharp that the company even warned investors over the possibility of a default on loans. However, currently the stock performance is stable and the company is highly profitable, so the risk of default is negligible. Like En+, Rusal undergoes reorganization required to get out of the US sanctions.

Past performance. RUSAL stock has been fairly volatile in recent years. After a twofold decline in 2015–2016, its share price increased by 3 times a year later, and fell sharply in early 2018, although the latest drop in price was due to the US sanctions only, and not to any shortcomings within the company.

Pros. Decent dividend yield, low P/E ratio, proactive attitude toward the US sanctions.

Cons. Certain default risk in case of adverse market conditions (which is still low according to experts).

3. Slavneft-Yaroslavneftorgsintez (YANOS)

JNOS worker/Tass

  • Symbol: MOEX: JNOS
  • Market cap: RUB 22B ($350M)
  • P/E ratio: 3.1
  • Dividend yield: 0.1%
  • 6-month depreciation: –36%

The largest oil refinery in the Northern region of Russia, located in Yaroslavl. The company, founded in 1961 as a state-run enterprise, was transformed into a semi-privatized company in 1995, with the controlling interest being held by Slavneft, one of the top ten Russian oil companies. While being often referred to as Slavneft’s subsidiary, the company is listed on the Moscow Stock Exchange as a separate entity. YANOS is the fifth largest refinery in Russia in terms of capacity, processing up to 18M tonnes of oil per year. Its main products are being sold to almost all large enterprises of the Central and North-Western regions of Russia and include gasoline, diesel fuel, aviation kerosene, jet fuel, mineral oils, bitumen, paraffin, etc.

Past performance. YANOS share price rallied in 2014, mainly due to the devaluation of the ruble, but the reversal was soon to follow and currently, the stock is traded at about the same level. The low P/E ratio, however, allows being cautiously optimistic toward its future appreciation.

Pros. Low P/E ratio.

Cons. Long-term negative share price trend, extremely low dividend yield.

4. Irkutskenergo

Hydroelectric power station/Baikal-info.ru

  • Symbol: MOEX: IRGZ
  • Market cap: RUB 54B ($860M)
  • P/E ratio: 3.6
  • Dividend yield: 3.1%
  • 6-month depreciation: –33%

One of just four Russian energy companies that are not controlled by RAO UES of Russia. Irkutskenergo owns and operates 3 hydroelectric facilities located on the Angara River (Irkutsk, Bratsk, and Ust-Ilimsk hydroelectric power plants), and 13 coal-fired combined heat and power plants with the total installed capacity of 12,879.9 MW of electric power and 13,002 Gcal/hour of thermal power.

Past performance. Irkutskenergo shares were relatively cheap in 2014–2015. Later in 2016–2017, the stock entered a rally, but in 2018 the share price was affected by the sanctions imposed on Deripaska. Despite the decline, the stock is still traded above the 2014–2015 levels.

Pros. Low P/E ratio suggests the stock may be nearing the bottom.

Cons. No significant disadvantages were found.

5. Mostotrest

Mostotrest bridge/Mostro.ru

  • Symbol: MSTT
  • Market cap: RUB 31B ($494M)
  • P/E ratio: 4.9
  • Dividend yield: 9.8%
  • 6-month depreciation: –30%

The largest Russian heavy construction company, primarily engaged in the construction of roads, railways, bridges, and highways. A rare case with Russian businesses, the company, which was privatized in 1991 following the dissolution of the USSR and then made public in 2010, still operates under the same name as in 1930 when it was founded.

Past performance. By the year 2013, MSTT stock was traded at a relatively high price but then started to become increasingly affected by the overall instability on Russian markets. By the beginning of 2015, its share price fell twofold. In 2017, the stock somewhat recovered but failed to hold on to the gains that year. Unlike most companies on this list, Mostotrest’s P/E ratio is not low enough to predict a new recovery, nor the technical indicators are encouraging. Nevertheless, the dividend yield is fairly high.

Pros. Highest dividend yield in this review.

Cons. No predictable share price trend.

6. Magnit

Magnit store/Shutterstock.com

  • Symbol: MOEX, LSE: MGNT
  • Market cap: RUB 466B ($7.4B)
  • P/E ratio: 11
  • Dividend yield: 5.9%
  • 6-month depreciation: –27%

Formerly the world’s fourth-largest retailer by market capitalization, Magnit PAO, founded in 1994, operates more than 10,000 stores in 2110 Russian cities and towns. In 2015, it was included in the 100 World’s Most Innovative Companies Ranking by Forbes, ranking 23rd and outscoring such giants as Visa, Starbucks, Adobe, and Coca-Cola.

Past performance. Magnit shares were skyrocketing in 2015-2017 but then fell twofold. The technical indicators allow for cautious optimism, although the P/E ratio is a bit too high, suggesting that the decline isn’t just over yet

Pros. High dividend yield.

Cons. Highest P/E ratio in this review.

7. Protek

Rigla drugstore/Rigla-card24.ru

  • Symbol: PRTK
  • Market cap: RUB 44B ($701M)
  • P/E ratio: 6.3
  • Dividend yield: 6.7%
  • 6-month depreciation: –23%

A biopharmaceutical company, founded in 1990 and primarily engaged in the development and distribution of medicinal products. Its main facility, located in the Moscow region, is able to produce up to 100M ampoules of various bioactive solutions a year. While the company has been publicly listed since 2010, the majority of its shares is owned by its chair Vadim Yakunin, leaving only 20% in circulation.

Past performance. The stock rallied in 2015–2016, saw its share price increasing threefold, but in 2018 it started to decline rapidly. The company’s P/E ratio is relatively low by local standards but its high dividend yield is reassuring.

Pros. High dividend yield.

Cons. No predictable share price trend.

All information is taken from the stock screener msn.com. The survey in this text is provided to you for informational and analytical purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here.

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