Yandex Discount to Mail.ru Is Buy to Auerbach: Russia Overnight

Yandex NV (YNDX)’s biggest discount in five months to competitor Mail.ru Group Ltd., will shrink as Russia’s most-used search engine doesn’t face the risks of further losses by Facebook Inc. (FB), Auerbach Grayson & Co. said.

The Russian search engine slid 1 percent yesterday, sending its enterprise value, or the sum of its equity and net debt, to 13.4 times estimated earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That’s a 38 percent discount versus Mail.ru, the largest Russian-language Internet company, the widest gap since March 1. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian stocks listed in the U.S. rose 0.1 percent to 94.37.

Yandex, based in the Hague, reiterated on July 31 its forecast for a 40 percent to 45 percent revenue growth in 2012. While the company receives more than 90 percent of sales from online ads, Mail.ru, which holds stakes in Internet companies Facebook, Groupon Inc. and Zynga Inc., gets about 40 percent of revenue from that source, Auerbach said. Facebook, the world’s largest social-networking service, disappointed investors on July 26 when its first earnings report as a public company showed slower sales growth.

“It’s a good time to enter the trade of Yandex versus Mail.ru,” Simon Mandel, the director of emerging Europe equity sales at Auerbach said in an interview at Bloomberg headquarters in New York yesterday. “Mail.ru is too heavily associated with risks relating to Facebook and other social media companies that it has stakes in.”

Yandex fell to $20.90 in New York yesterday.

‘Purer Play’

The RTS stock-index futures expiring in September lost 0.2 percent to 144,000. The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, rose 0.2 percent to $27.88. The RTS Volatility Index, which measures expected swings in the index futures, advanced 1.2 percent to 28.99, gaining for the first time in four days.

Internet targeted ads soared 50 percent in the first quarter to 10.1 billion ruble ($320 million), according to the Association of Communication Agencies of Russia. That compares with a 10 percent increase in television ad spending and a 19 percent gain in radio advertisement in the first quarter, the association, known as AKAR, said on its website.

“Yandex’s growth will continue, offering a refuge from global growth deceleration,” Mandel said in an e-mailed note yesterday. Yandex is “a much purer play on Russian online ad spending,” he said.

‘Time to Switch’

New York-based Auerbach has partnership agreements with banks and brokers in 130 countries, according to the company.

“Yandex is the best way to get exposed to the growing online advertising market in Russia and avoid risks related to global Internet companies, particularly Facebook,” Konstantin Belov, analyst at UralSib Financial Corp. in Moscow, said by phone yesterday. “It’s a good time to switch.”

Moscow-based Mail.ru (MAIL) fell 0.1 percent to $36.17 in London, dropping for the first time in nine days. The global depositary receipts jumped 39 percent in 2012, compared with a 6.1 percent gain in Yandex shares.

Facebook, which has tumbled 45 percent since its initial public offering in May, may drop further after the expiry on Aug. 16 of a so-called lockup period, which bar insiders from selling shares for a length of time after the IPO, Mandel and Belov said.

Urals Gains

Brent oil for September settlement gained 1 percent to $113.22 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, increased 1.7 percent to $114.10 per barrel, the highest since May 3.

Russia depended on revenue from oil and gas for 50 percent of its 2011 budget.

“Russia’s non-oil companies, especially those focused on domestic consumers, benefit the most from rising oil price, because rising exports revenue translate into higher domestic spending,” Igor Nuzhdin, an analyst at Nomos Bank, said by phone from Moscow yesterday.

Crude for September delivery was little changed at $93.36 a barrel on the New York Mercantile Exchange yesterday. Prices are up 20 percent from $77.69 on June 28, the lowest close this year.

CTC Media Inc. (CTCM) dropped the most since July 3, falling 4 percent to $8.49. The stock was the biggest decliner on the Bloomberg Russia-US Index yesterday.

OAO Gazprom Neft (GZPFY), the oil arm of Russia’s natural gas export monopoly, surged 2 percent to $24.95, the highest since April 25, and was the biggest gainer on the gauge. The company is scheduled to report second-quarter earnings on Aug. 13.

United Co. Rusal, the world’s largest aluminum producer, was unchanged at HK$4.24 in Hong Kong trading as of 10:39 a.m. local time. The MSCI Asia Pacific Index fell 0.3 percent today.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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