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Annual profit growth leaders from Russia
07
Jul
Annual profit growth leaders from Russia

 

Today we’re talking about Russian companies meeting the following conditions:

— The company’s latest quarterly financial report in 2017 shows strong annual profit growth (compared to other companies in the market). Annual profit growth, as seen from the quarterly report, determines the company’s place in the rating.

— The company’s profit for 2016 exceeded its profit for 2015 by at least 50%. That means the quarterly growth in profits is not accidental.

— A market cap of at least RUB 10B (about $160M).

— A P/E ratio of not more than 20. That means the shares are not overpriced, and there’s almost no risk for investors to find themselves in a bubble.

All shares are traded on the Moscow Stock Exchange (MOEX, MCX). The review is based on data from http://www.msn.com/en-us/money/stockscreener and https://www.google.com/finance. All financial metrics are in rubles. The letter "B" stands for billions, "T" means trillions.

1. VTB Bank

VTB sign

— Symbol: VTBR

— Market cap: RUB 833B

— Annual turnover: RUB 1.1T

— P/E: 15

— Dividend yield: 1.8%

— Share price change YoY: –5%

— Quarterly profit change YoY: +385%

— Annual profit change in 2015–2016: +389%

— Annual turnover change YoY: +30%

Description. The second-largest bank in Russia in terms of assets (after Sberbank) and the largest one in terms of charter capital. 60% of the bank’s shares belong to the state. The bank was established in 1990 and held an IPO in 2007. Russian president Vladimir Putin personally agitated citizens to buy its shares, and the IPO became the largest in Russian history. More than 120,000 Russian citizens became VTB shareholders. However, later (after the sharp decline in stock prices during the 2008 crisis) the bank’s management considered the IPO to be unsuccessful.

Chart. Soon after the bank’s big and hyped IPO of 2007, when the shares were offered at 13 kopecks, the stock collapsed to 3 kopecks. Later in 2010 they recovered to 11 kopecks, and now fluctuate around 6 kopecks.

Pros. Largest quarterly profit growth in this review, impressive annual profit and turnover growth.

Cons. Relatively high (by Russian standards) P/E ratio, low dividend, negative share price trend.

2. Kuzbasskaya Toplivnaya Kompaniya PAO (КТК)

KTK machinery

— Symbol: KBTK

— Market cap: RUB 12B

— Annual turnover: RUB 27B

— P/E: 11

— Dividend yield: 5.2%

— Share price change YoY: +100%

— Quarterly profit change YoY: +366%

— Annual profit change in 2015–2016: +9870%

— Annual turnover change YoY: +35%

Description. A coal mining company operating in one of the most famous mining regions of the world (Kuzbass). The company owns three operating and one projected open-pit mines, as well as two concentrators in the Kemerovo region. KTK produces more than 10 million metric tons of coal per year.

Chart. The KTK shares hit an all-time high in 2011, followed by a nearly 5-fold protracted decline. Since 2016, the stock is gradually recovering.

Pros. Largest annual profit growth in this review, good quarterly profit and turnover growth, decent dividend, positive share price trend.

Cons. No significant cons were found.

3. Chelyabinsk Zinc Plant

Zinc blocks at the production site

— Symbol: CHZN

— Market cap: RUB 27B

— Annual turnover: RUB 30B

— P/E: 6.6

— Dividend yield: –

— Share price change YoY: +34%

— Quarterly profit change YoY: +143%

— Annual profit change in 2015–2016: +59%

— Annual turnover change YoY: +42%

Description. The largest Russian plant engaged in the production of zinc and zinc alloys (about 150 thousand metric tons per year, or 2% of the world and more than 60% of Russian production). The company also produces cadmium, indium, sulfuric acid, zinc sulfate. The plant was built in 1935, then privatized in 1995, and has been trading on stock exchanges since 2006.

Chart. In recent years, the plant has seen an impressive rise in share price, although this growth is partly due to the devaluation of the ruble (in US dollars, the growth is much more modest). The shares set a new record this year, but then retracted to about the level of 2015.

Pros. Excellent growth in quarterly profits, good annual turnover growth, low P/E ratio.

Cons. No dividends, negative share price trend in recent months.

About our previous forecasts. Chelyabinsk Zinc Plant was featured in our review on declining stocks in 2016, and we ranked its investment attractiveness as moderate. Since then, the stock has managed to rise from 400 to 670 rubles, but then rolled back again to 490. Those who invested in these stocks a year ago got some profit, but that’s mostly due to random factors.

4. Sberbank of Russia

German Gref, Sberbank’s President and Chairman

— Symbol: SBER

— Market cap: RUB 3.3T

— Annual turnover: RUB 2.4T

— P/E: 5.4

— Dividend yield: 4.1%

— Share price change YoY: +10%

— Quarterly profit change YoY: +93%

— Annual profit change in 2015–2016: +142%

— Annual turnover change YoY: +6%

Description. The largest bank in Russia and Eastern Europe, and the third largest in Europe. The oldest operating Russian bank, founded in 1841. For a long time the bank was state-owned and in fact held a monopoly in the banking services market. The bank was transformed into a joint stock company in 1991, but to date is still largely controlled by the state: more than 50% of Sberbank’s shares belong to the Central Bank of Russia. The bank’s share in Russian private deposits market is close to 46%. Sberbank is one of the most expensive brands in the world (estimated at about $11 billion).

Chart. Like most other Russian companies, Sberbank has significantly fallen in value in 2008, but won back its lost ground in 2011, and entered a new growth phase in 2016. The bank’s shares hin an all-time high in 2017, followed by a small drawdown, which so far does not affect the general trend.

Pros. Excellent growth in quarterly profits, positive share price trend, good dividend, low P/E ratio.

Cons. No significant cons were found.

About our previous forecasts. The bank was featured in our review on growing Russian shares in 2016. In the review, we estimated its investment attractiveness as average, as it had a much higher P/E ratio (9.5), low dividends (1.4%) and almost zero profit growth. Our cautious forecast turned out to be justified. At the time, Sberbank’s shares were trading around 140 rubles, and now they are just above 140, that is, the investors have basically gained nothing. But now the bank’s financial indicators have improved, and its investment attractiveness increased.

5. Polyus Gold

Ore tansportation at the Kuranakh deposit

— Symbol: PLZL

— Market cap: RUB 618B

— Annual turnover: RUB 163B

— P/E: 5.0

— Dividend yield: –

— Share price change YoY: –16%

— Quarterly profit change YoY: +70%

— Annual profit change in 2015–2016: +89%

Annual turnover change YoY: +19%

Description. One of the top 10 gold miners globally and the largest gold producer in Russia (20% of Russia’s gold production). Founded in 2006 as a subsidiary of Norilsk Nickel. The company develops ore and placer gold deposits in the Krasnoyarsk, Irkutsk, Magadan and Amur regions, as well as in Yakutia. Its mineral and raw materials reserves are estimated at more than 3000 tons.

Chart. The global crisis of the gold mining industry in the first half of 2010 did not bypass Russia: the Polyus Gold shares collapsed. But since 2015, they began to grow sharply, setting a historic record in 2016. Now the growth had stopped and the trend is slightly negative. However, the Polyus Gold shares are still way more expensive than prior to 2016.

Pros. Good annual and quarterly profit growth, turnover growth, low P/E ratio.

Cons. No dividend, negative share price trend..

About our previous forecasts. Polyus Gold is a longtime hero of our reviews. In the summer of 2015 and 2016, it was mentioned in our ranking of companies with growing capitalization, and in the autumn of 2016 the company appeared in the ranking of companies with growing profits. Over time, its investment attractiveness has changed. In 2015, the company had an absurd P/E ratio of more than 100. Only an investor who was absolutely confident in its imminent return to normal profitability could buy its shares at the moment. And it really happened: by the summer of 2016, the company’s P/E ratio was already 15, and now it’s just 5. But even in 2016 we carefully estimated the company’s investment attractiveness as moderate. And we were right: despite the growth in profits, Polyus shares have been declining since April 2016. Now, with such a P/E, we can expect the stock to start growing again, but the growth is likely to be moderate. Only those who ventured to invest in the company in 2015 have got really good profits now.

6. MRSK Centre

MRSC Center provides electricity to people and businesses

— Symbol: MRKC

— Market cap: RUB 18B

— Annual turnover: RUB 86B

— P/E: 3.9

— Dividend yield: 10.2%

— Share price change YoY: +83%

— Quarterly profit change YoY: +64%

— Annual profit change in 2015–2016: +454%

— Annual turnover change YoY: +27%

Description. Interregional Distribution Grid Co of Centre PJSC (IDGC of Centre), also known as MRSK Centre, is an energy company managing electricity distribution and connection of new customers to the electricity grid in 11 regions of the Central European area of Russia. The company controls 84% of the electricity transmission market in the region. It was founded in 2004 after the reform of the famous RAO UES (Unified Energy Networks) of Russia. Now it is a subsidiary of the Rosseti electric grid company.

Chart. The company’s shares reached a record high in 2013, followed by a 3-fold collapse. The stock began to grow again significantly only in 2016 and has yet to reach the previous high.

Pros. Excellent annual profit growth, positive share price trend, huge dividend, low P/E ratio, turnover growth.

Cons. No significant cons were found.

7. Magnitogorsk Iron and Steel Works

Cast iron melting in a blast furnace shop

— Symbol: MAGN

— Market cap: RUB 371B

— Annual turnover: RUB 332B

— P/E: 5.3

— Dividend yield: 5.9%

— Share price change YoY: +38%

— Quarterly profit change YoY: +54%

— Annual profit change in 2015–2016: +165%

— Annual turnover change YoY: +58%

Description. Russia’s largest metallurgical plant, built in 1932. The plant carries out a full production cycle from iron ore preparation to deep-processing of ferrous metals. The plant has staff of about 60,000 and, as of 2012, produces 13 million tons of steel and 12 million tons of commercial steel products per year.

Chart. Like Sberbank, the Magnitogorsk Iron and Steel Works fell sharply in value in 2008, but recovered quickly in 2010. This was followed by a new deep decline: the stock fell 6-fold between 2011 and 2014. However, later in 2014, the plant’s stock entered a new growth phase. In 2016, the shares reached the level of 2010, and then in 2017 set a new record. The spike was followed by a short correction, but only to the levels of 2016.

Pros. Excellent annual profit growth, positive share price trend since 2014, good turnover growth, decent dividend, low P/E ratio.

Cons. No significant cons were found.

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