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Uralsib - Russia Daily Equity Update, Market Overview - Oct 14 , 2011.

KEY DRIVERS

MARKET OVERVIEW

Investors lack conviction to continue buying after the global equity markets completed a vigorous seven-day bounce. We see rising headwinds for stocks in view of further potential disappointments from the 3Q11 corporate earnings reports and continuing downgrades of sovereign and bank ratings.

(To view the full report please click here:

http://reports.aiidatapro.com/brokers/UralsibEN/111014.pdf)

ROSTELECOM (RTKM - HOLD)

Rostelecom released mixed 2Q11 consolidated IFRS financials, which reflected a QoQ and YoY improvement in profitability, as well as a deterioration of its business in the traditional telecom segment. The results confirm our cautious view on the company's fundamentals.

OTHER NEWS

FUND FLOWS

Russia funds recorded $190 mln outflows in the week to Wednesday. Investors are not convinced that markets have bottomed, and are using bounces to lighten exposure to EM equities.

LUKOIL (LKOH LI - BUY)

Yesterday, CEO Vagit Alekperov announced the company's preliminary investment program for the next ten years. The company will invest $10 bln per year with a focus on E&P projects. We see the news as neutral for LUKOIL and reiterate our Buy recommendation.

BASHKIRENERGO (BEGY RX - NOT RATED)

The company's BoD is to discuss the size and record date of the company's interim dividends for 9M11 at its meeting scheduled for today. We expect a dividend yield of 3.2-4.8%, which should create positive reaction around the name.

RASPADSKAYA (RASP RX - HOLD)

Yesterday Raspadskaya released negative 3Q11 operating results, posting a 28% QoQ decline in raw coking coal production to 1.2 mln tons. Despite a 20% downgrade of the 2011 production plan, we believe the new guidance is also unrealistic and remain cautious on the name.

POLYMETAL (PMTL LI - BUY)

Polymetal has released an expectedly strong 3Q11 trading update. The company is on track to meet 2011 production guidance and reported progress in operations for both projects under development as well as operating facilities. The announced RTO is positive in the long term, while the MTO supports the share price in the short term.

ETALON GROUP (ETLN LI - NOT RATED)

Etalon Group yesterday released 1H11 IFRS results, followed by a conference call. We believe that the results may generate positive sentiment around the name due to the solid YoY margin performance and management's expectation of doubling completion volumes by 2014 to roughly 1mln of sqm of NSA per a nn um.

ROSINTER (ROST - NOT RATED)

Rosinter yesterday released a September trading update. Revenues increased only 7% YoY, and the company saw negative LFL sales growth. We remain concerned about Rosinter, and believe that it may come under pressure from competitors.

NEWS IN BRIEF

KALINA (KLNA RX- NOT RATED)

Kalina, one of the largest Russian cosmetics producers, may be acquired by Unilever for $850 mln, which means an equity value of $736 mln, implying a 63% premium to current quotes. Interfax

CHERKIZOVO GROUP (CHE LI - NOT RATED)

Cherkizovo Group temporarily suspended its additional share issue (aimed to finance the Mosselprom acquisition), claiming technical issues. Source: Kommersant

TNK BP

Proposed head of TNK-BP, Maxim Barsky, most likely will not be appointed due to a lack of support from both the Russian and British parties. Source: RBC Daily

MARKET OVERVIEW

Poor start to earnings season

Markets falter after a vigorous bounce. Investors lack conviction to continue buying after global equity markets completed a vigorous seven-day bounce, which was unprecedented since the last bear market of 2009. However, given that the elevated volatility is unlikely to fade away quickly, we note a rising chance of greater headwinds for stocks in the short term, which may be triggered by further disappointments from the 3Q11 corporate earnings. On the macro side, investors will focus on the preliminary October consumer sentiment reading from the University of Michigan and September retail sales statistics in the US. Cash equity indexes and futures are universally in the red this morning after another round of downgrades from the key rating agencies overnight: S&P made another cut to Spain's sovereign rating, while Fitch downgraded several large European banks and stated that a dozen more may follow. Although the cuts themselves bring nothing new to the market and look fully priced in and justified by the bond market, more downward revisions may put additional pressure on risk premiums globally.

Reporting season starts on a disappointing note. The start of the US corporate reporting season has so far brought nothing positive for the market. Yesterday JPMorgan Chase was not able to fare any better than Alcoa, as its adjusted earnings missed consensus estimates. This resulted in US banking stocks coming under pressure after a poor trading session of the sector in Europe. Investors will remain especially wary of 3Q11 financials and guidance from banks, which may put a short-term cap on the equity markets' performance. Today, there are no significant corporate reports scheduled to be released, as attention shifts to next week when the reporting season starts in earnest.

Government committed to cap tariff growth next year. Prime Minister Vladimir Putin's announcement yesterday on the government's commitment to limit tariff growth for natural monopolies in 2012 could scare investors in the utilities sector in particular. We understand that the statement is primarily motivated by the desire to limit the potential negative impact to households ahead of the upcoming elections and is not related directly to the utilities segment, especially the generation segment. We therefore reiterate our preference for generation stocks in the current environment.

more: http://reports.aiidatapro.com/brokers/UralsibEN/111014.pdf

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For further Information please contact: URALSIB Capital, Efremova St, Moscow, Russia,119048

phone:+7(095)788-0888 , fax: +7(095)785-1206

http://www.uralsibcap.com
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Publication:Russian Banks and Brokers Reports
Date:Oct 17, 2011
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