BCS Express experts identified the main trends and selected 5 shares of Russian companies that may be of interest in the medium term.
High dividend yield and buyback
Lukoil – an attractive company amid high oil prices and high expected dividend yield. At the end of the 4th quarter, the average price of a barrel of Brent in rubles increased by 7.5% qoq, and at the beginning of 2022 it is near historic highs.
Lukoil differs from other Russian oil companies in its dividend policy – the basis for payments is the adjusted free cash flow (FCF). Due to this, the size of payments is protected from one-time paper losses, and the dividend yield, thanks to the 100% payout ratio, is often higher than the levels of competitors in the industry. By the end of 2021, the dividend yield may turn out to be about 10%.
An additional attractiveness factor is the buyback company. For the period from November 26 to December 21, the company has already allocated about 13.3 billion rubles for the buyback. Assuming the buyback continues, the stock should outperform its industry competitors.
In the medium term, the positive outlook on the securities remains. The current oil prices remain more than comfortable for the company. Growth targets on the horizon for the coming months: RUB 7500–7750.
Profit breaks records
In the banking sector, you should pay attention to stocks VTB… At the end of 2021, the financial results of the bank should grow several times, the net profit for 11 months of 2021 increased 4.4 times y / y. The bank met its profit target for 2021 ahead of schedule in November. The improvement in financial metrics is due to the economic recovery after COVID-19, as well as a strong decrease in reserves this year.
Based on the profit for 11 months, VTB’s dividends in 2022 may exceed RUB 0.0065. per share, which corresponds to about 13.6% of dividend yield at current prices.
Prospects for further growth and development in 2022 allow us to expect a rise in shares in the coming months with medium-term targets in the region of 0.06–0.0625 rubles.
Against the backdrop of high oil prices, securities are also interesting Rosneft… The company is the largest oil producer in Russia and benefits significantly from price increases and production cuts under the OPEC + agreement. At the end of the third quarter of 2021, the financial results of the company exceeded forecasts, the net profit increased by 35% compared to the second quarter of 2021.
In addition, the implementation of the large Vostok Oil project is a strong factor of investment attractiveness in Rosneft’s case. Its resource base is 6.2 billion tons of high-quality, low-sulfur oil with a minimum carbon footprint, which is especially important in the context of the growing relevance of the ESG agenda.
The company is now attracting investors to implement the project, which, as part of the sale of shares, is estimated at about 70 billion euros, with the capitalization of Rosneft itself at 75.4 billion euros. In mid-October, the company sold another 5% stake in the project to a consortium of Vitol SA and Mercantile & Maritime Energy Pte. Vostok Oil is a long-term driver in Rosneft shares, but already now it is gradually being included in the price of securities.
In the mid-term horizon, you can count on a rise to 650-700 rubles.
Stock Yandex – a stake on the further growth and development of business, including such areas as food tech, taxi, e-commerce, and more recently fintech.
According to the results of the third quarter, the company’s revenue increased 1.5 times, to 91.3 billion rubles. At the same time, the Taxi segment and Yandex.Market gave a significant impetus to the acceleration of revenue growth rates – revenue growth rates amounted to 83.3% and 25.4% YoY, respectively. The company has once again raised its forecast for the growth rate of revenue.
At the moment, Yandex.Market is showing losses due to its relatively small scale, however, as the development and increase in trade turnover, the direction should go into profit – a similar situation was with the taxi segment.
Recently, Yandex shares have been among the outsiders of the Russian market. The securities did not fully manage to win back the fall due to the growth of geopolitical tensions, then they were hit by new blows from the pandemic and corrections in the US IT sector. At the same time, there are no qualitative deteriorations in the Yandex case. The drawdown is interesting for building up long positions in the medium and long term. On the horizon of the coming months, let’s say a rise to 5400–5600 rubles.
Allocation and dividends
Stock Raspadskaya attractive considering expectations of spin-off from Evraz, new dividend policy, purchase of Yuzhkuzbassugol and favorable market conditions.
At the end of 2021, Evraz’s board of directors approved the spin-off of Raspadskaya from the company. This is a positive moment for the investment case, signaling that the spin-off process is gradually moving towards completion.
In addition, at a meeting of the Board of Directors held on November 24, it was decided to recommend the payment of dividends for 9 months of 2021 in the amount of 28 rubles. per share, with a dividend yield of about 7%. Previously, the company paid dividends only for the first half of the year and the whole year, so payments for 9 months should remind investors about the qualitative improvement of the company’s dividend policy. The dividend yield of securities on the horizon of 12 months may reach 14-21%.
In the mid-term horizon, holding long positions in securities with the goal of 520-550 rubles. remains relevant.
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