ATON - Daily Dashboard - Nov 13, 2010.
The RTS decreased 1.13% and MICEX closed 0.48% loweryesterday as concerns that moves in China to limit inflation maytame economic growth, and in turn dent demand forcommodities. Commodity boards were a sea of red with WTIcrude futures falling 3.34% to $84.9/bbl. In the metals sphere,silver spot, threemonthnickel and threemonthzinc prices alltumbled more than 5%. Of the few stocks to post gains onMICEX, we note that Novolipetsk Steel added 2.42% whileTransneft prefs (+2.22%) continued to advance after MSCIannounced this week that it will include the stock in its MSCIRussia Index.
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GLOBAL MARKETS: PERFORMANCE AND THEMES
Developed markets finished the week in the red yesterday asfears that China may increase interest rates to dampen itsinflation (and may in the process curtail economic growth)negatively impacted equities and commodity prices globally. TheS&P 500 dropped 1.18%, the EuroStoxx 50 closed 0.31% lower,and the Nikkei retreated 1.39%. We note that European indicesgained some support from unconfirmed media reports thatEurozone countries may provide fiscal support to the region'smost debtladenmembers.
Worst performing sectors: Basic Materials, Financials, Technology.EMERGING MARKETS
EMERGING MARKETS: PERFORMANCE AND THEMES
Emerging markets tracked developed economies lower yesterdaywith the MSCI EM Index closing 1.55% weaker on the day. TheShanghai Composite collapsed 5.16% during the selloff.Withregards to Russia's other BRIC partners, commoditydrivenBrazilslipped 1.16% while India fell 2.10%, also dragged lower by aslowdown in the country's industrial production growth.
Rosstat Estimates GDP Grew a Disappointing 2.7% YoY in 3Q10
In 3Q10 Russia's GDP grew a mere 2.7% YoY according to an estimate released by Rosstat on Friday (12 Nov). This was below the3% growth expected by Bloomberg consensus and well below our own forecast of 4.2%.
While Rosstat has not released any further details in terms of GDP breakdown, we see the result not only as negative, but assomewhat surprising. On the one hand, 3Q10 GDP was impacted by the severe summer drought and consequent plunge inagricultural production, down 10.7% YoY in 3Q10. At the same time, agriculture only represents about 4% of GDP. Judging by 3Q10YoY growth in other variables, such as industrial production (+6.4%), fixed investment (+7.0%), retail sales (+6.0%), and disposableincome (+4.3%), we would have expected a higher GDP expansion.
While we wait for the final confirmed figure, we can only speculate that net exports, inventories, and GDP deflators contributed tothe negative quarterly result. Net exports in 3Q10 were down 26% YoYI3/4 however, net exports contributed only 5% of GDP in theperiod. We may now have to further downgrade our current forecast of 4.9% growth for 2010 as a whole.
Banking Sector (Excluding Sberbank) PreTaxProfits Show Notable Increase in October
According to RIANovosti,First Deputy Chairman of the Central Bank of Russia Gennady Melikyan announced on Thursday (11 Nov),that the banking sector's (ex. Sberbank) pretaxprofits for 10M10 increased 22.6% vs 9M10. This was mainly thanks to lowerprovisioning and partial writebacksof reserves. Melikyan mentioned that provisioning levels are now minimal and despite net interestmargin (NIM) remaining under pressure and revenues failing to expand, profits are up.
Corporate loans increased 1.5% MoM in October (including Mezhprombank's [MPB] results after its banking licence was revoked inOctober). Excluding MPB's results would see loans decrease 0.1%.
Total assets increased by 1.5% (including MPB) but only 0.8% not taking MPB into account.
Retail loans and deposits increased in October by a healthy 2% and 2.6%, respectively.
Corporate deposits decreased by 0.4%MoM.Melikyan noted that total NPLs decreased by 2.6% MoM in October, while retail loans overdue increased 1.3% MoM.
Reserves dipped 2.9% again due to lower provisioning and provisioning releases.
In our opinion, the sector's October results are mixed. We view lower provisioning and writebacksof provisions, which resulted inhigher pretaxprofits, as positive. At the same time, CBR representatives that margins are still decreasing and revenues are flat, whichis obviously negative for the sector.
NOVATEK Reports Strong 3Q10 Results
NOVATEK reported 3Q10 IFRS results yesterday (12 Nov) that came in strong with earnings exceeding consensus by 3.4% and ourestimates by 9.3%.Revenues of RUB28.79bn were practically in line with consensus and 3.1% better than our forecast due to betterthanexpectednetbacks and a higherthanexpectedshare of natural gas sold to endcustomers.The company demonstrated 31% and 12%revenue growth YoY and QoQ, respectively driven mainly by higher prices and to a lesser extent by an increase in volumes. The shareof natural gas sold to endcustomersincreased to 75%, up from 66% in 2Q10 and 60% in 1Q10.
EBITDA of RUB13.6bn was practically in line with consensus and 9.4% higher than our forecast due to betterthanexpectedcostcontrol.Below the operating line, the company posted a RUB570mn forex gain on a slightly strengthening rouble. NOVATEK reported a lowerthan statutory (20%) effective income tax rate of 19.4%. As a result, net income of RUB10.1bn was 3.4% and 9.3% better thanconsensus and our estimates, respectively, and 37.4% and 41.5% higher YoY and QoQ.
Overall, the results look strong and we expect a positive reaction from the market. The company will host a conference call on 16Nov, during which we hope to learn about NOVATEK's recent acquisitions and their financing, and the company's midtermstrategy.
Apatit Releases Neutral 9M10 RAS Financial Results
Apatit released 9M10 RAS financial results yesterday (12 Nov) which showed revenue growth of 48% YoY to RUB27.8bn. Thisincrease came largely on the back of a new processing scheme agreed between Apatit and phosphate fertiliser producers Ammophosand Balakovo Mineral Fertilisers, which are controlled by PhosAgro.Under the processing scheme, Ammophos and Balakovo process apatite concentrate supplied by Apatit into diammonium phosphate(DAP) for a commission paid by Apatit. We note that the new scheme affected the company's SG&A which rose by 112% toRUB5.8bn (20% of revenues as compared to 15% a year ago). The increase in SG&A filtered down to the net income line whichdeclined 18% YoY to RUB4.6bn.
We view the news as neutral for Apatit's shares since we believe the market is currently more concerned with the situationsurrounding the company's blocking stake, which is owned by the government.
MGTS - Sistema's Obligatory Buyout at RUB436.2/Share
Comstar reported yesterday (12 Nov) that Sistema Invest has made an official obligatory public offer to MGTS minorities to buy outtheir common shares at RUB436.2/share. The price is in line with E&Y's valuation, commissioned as part of the Svyazinvest asset swapof 28% of MGTS into Sky Link.W e remind readers that following the swap's completion, Sistema's stake in MGTS increased to 97.96% of the common shares (viaSistema's shareholding in MTS), triggering a mandatory buyout offer to MGTS minorities.The obligatory offer was made to MGTS common shareholders and not to preferred shareholders. Minorities will have 70 days toaccept the offer (until close of business on 20 Jan).
The reported offer is in line with the previously announced figure given in Vedomosti (29 Oct) and only 2.6% higher than the currentMICEX price. We therefore see the news as neutral for stock. We would advise minorities to cash out by accepting Sistema'sobligatory offer as MGTS shares have limited liquidity.Sistema is going to purchase 2.04% of MGTS's ordinary shares and will spend about $23mn on the buyout, which should not be aproblem for the holding. In our view, given MGTS's fundamental undervaluation, there is a chance for Sistema to sell this stake at ahigher price later to MTS, which via Comstar controls MGTS.
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