OAO Mobile TeleSystems (MBT), the largest Russian mobile operator by market capitalization, and phosphate miner OAO Phosagro are among the top picks this year of Swedbank Robur, the investment arm of Sweden’s second-largest lender.
Phosagro has an estimated end-2013 enterprise value to earnings before interest, tax, depreciation and amortization multiple of 5.1 times, compared with 9.3 times for rival potash producer OAO Uralkali. (URKA) Mobile TeleSystems, known as MTS, trades at a 14 percent discount to its New York-listed depository receipts after the company hit the limit for converting its local shares into overseas stock.
“We always invest in what is undervalued, and in this case we own local shares of MTS,” Elena Loven, who helps manage more than 1 billion euros ($1.3 billion) of Russian securities, said in an interview. Robur likes the fertilizer industry and “made a bet on the cheaper company,” she said in Moscow on March 5.
Phosagro had a 25.8 percent return on invested capital in 2011, while Uralkali’s return was 20.9 percent, according to data compiled by Bloomberg. Robur is betting on MTS stock prices converging after Elena Kuritsyna, the deputy head of the Federal Security Markets Service, said Feb. 13 that Russia’s market watchdog may lift the 25 percent limit on converting local shares into depositary receipts in mid 2014, Loven said.
Robur made “very good money,” when PepsiCo Inc. (PEP) bought Russian juice maker Wimm-Bill-Dann Dairy & Juice Co. in 2010 at the price of the company’s ADRs, Loven said. Wimm-Bill-Dann’s local shares traded with a 25 percent discount to the ADRs the day before the $3.8 billion deal was announced.
MTS also offers an appealing dividend yield, Loven said. The company has a 6.4 percent yield compared with 3.7 percent for the MSCI Russia Index, data compiled by Bloomberg show.
Swedbank Robur, which manages 70 billion euros in assets, says Magnit is too expensive for an overweight position. The largest chain of grocery stores in Russia was the best performer among the MSCI Russia index constituents in 2012 with a 90 percent gain and showed a compounded annual revenue growth rate of 32 percent from 2007 to 2012, according to data compiled by Bloomberg.
“Everybody loves it, loves its owner, loves its strategy,” Loven said. “But at a valuation like that people start dreaming up what else they can put in their models in order to justify the buy” recommendations, she said.
Magnit is rated buy by 15 analysts, data compiled by Bloomberg shows, with seven hold recommendations and no sells. The average target price is $49.8 per GDR, implying an 18 percent return potential from the current market price.
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