Stock investors expecting Yandex NV’s focus on advertising to drive sales growth next year are paying the highest premium in six weeks for Russia’s most-used search engine over Internet company Mail.ru Group Ltd.
Yandex, whose search site outrates Google Inc.’s in Russia, jumped 4.2 percent in New York last week and traded for 27.6 times estimated earnings on Nov. 20, 8.2 percent above the valuation for Mail.ru, a London-listed Russian language company that owns social network VKontakte and sells online games. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. gained 2.9 percent last week, and futures on the RTS Index rose 0.6 percent to 144,060 on Nov. 23.
The Hague, Netherlands-based Yandex traded at a discount to Mail.ru for most of 2012 until the third quarter, when the company saw a 34 percent jump in net income and raised its annual sales forecast, according to results issued Oct. 30. Yandex, which got 98 percent of revenue from advertising last year, has climbed 18 percent in the second half, while Moscow-based Mail.ru, whose co-founder Gregory Finger sold his stake in September, has lost 9.1 percent.
“Over the long term I would prefer Yandex on the back of stronger market fundamentals for next year and a simpler business case,” Alexander Vengranovich, an analyst at Otkritie Financial Corp. who has buy ratings on both stocks, said by phone from Moscow Nov. 21. “Yandex is purely related to the advertising market, while Mail’s gaming business and social networks is a more difficult business case.”
The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, rose 1.5 percent to $28.04 on Nov. 23, pushing its weekly gain to 4 percent. The RTS Volatility Index, which measures swings in the index futures, dropped 1.6 percent to 22.39.
Yandex was little changed at $22.44 on Nov. 23 as Mail.ru declined 0.5 percent to $30.79. Mail.ru global depositary receipts slipped 0.6 percent to $30.60 by 1 p.m. in London today.
The 14 percent jump in Yandex shares this year is more than four times the advance in the Russia-US gauge. Mail.ru, which also runs an e-mail platform, dropped 3.6 percent last week, trimming the yearly advance to 18 percent.
Profit for Yandex rose 34 percent in the third quarter to 2.3 billion rubles ($74 million) from the same period a year earlier, the firm said on Oct. 30. The company’s share of Russia’s Internet searches in the week ended Nov. 18 was 60.3 percent, compared with 26.6 percent for Google Inc. and 8.6 percent for Mail.ru, according to data from Liveinternet.ru.
Mail.ru raised its 2012 forecast for sales growth to between 42 percent and 45 percent, up from a previous estimate of between 40 percent and 45 percent. The Internet company’s sales advanced 37 percent in the third quarter, Mail.ru said on Oct. 25.
“I’m more optimistic on Yandex than on Mail,” Konstantin Belov, an analyst at UralSib Financial Corp. who rates Yandex a buy and Mail.ru hold, said by phone from Moscow on Nov. 21.
“The investment case in Yandex is clear, exposure to the growth of Russian Internet advertising market, which is a very clear story, the advertising budgets are shifting online and Yandex is a very strong player in this market,” he said. “Mail has two major sources of income, advertising and paid services including games. The company has been doing fine in growth and profitability, but it’s a big question how fast the market would grow.”
Russia’s advertising market grew 21 percent in 2011, driven by a 56 percent jump in Internet ad spending, according to Association of Communication Agencies of Russia data released earlier this year.
VimpelCom Ltd., the world’s sixth-biggest mobile phone company by subscribers, gained 0.7 percent to $10.76 in New York after Russia’s antitrust regulator agreed to withdraw legal claims against shareholder Telenor ASA increasing its stake, freeing the company to distribute dividends.
The claims were scrapped after Russian billionaire Mikhail Fridman’s Altimo investment company increased its stake in VimpelCom, making it the telecommunications company’s largest shareholder.
“It’s not surprising because the cause of the injunction was removed,” Mattias Westman, who oversees about $4 billion in Russian assets as chief executive officer of Prosperity Capital, said by phone from London on Nov. 23. “But people have a tendency to not believe things until they see them, and they’re happy to get their dividends.”
Prosperity holds 0.89 percent of VimpelCom stock, the third biggest shareholder after Altimo and Telenor, according to data compiled by Bloomberg. VimpelCom has a 12-month dividend yield of 4.2 percent, compared with 4 percent for OAO Rostelecom, Russia’s state-run phone operator.
American depositary receipts of OAO RusHydro soared 6.7 percent to $2.39 on Nov. 23, the biggest gain in six months in trading volumes 21 percent of the three-month average, according to data compiled by Bloomberg. Shares of Russia’s largest renewable energy producer jumped 6 percent to 77 kopeks last week, or 25 U.S. cents. One ADR represents 100 ordinary shares. The stock slid 1.4 percent to 76 kopeks today.
Russian President Vladimir Putin approved a proposal to provide Moscow-based RusHydro with as much as 50 billion rubles from the budget this year and allow the company to issue additional shares to increase its capital, according to an e-mailed copy of a document setting out the agreement released Nov. 22.
ADRs of OAO Sberbank, Russia’s largest lender, gained 4.1 percent to $11.68 in New York on Nov. 23, widening the premium over the bank’s Moscow shares to 1.5 percent, the most in two months. Sberbank was little changed at 89.24 rubles, or $2.88 in Moscow today. One ADR is equivalent to four shares.
Ruble futures strengthened 0.3 percent to 31.131 per dollar in Moscow trading today. The currency posted the biggest advance in two months last week at 2.1 percent, as companies converted dollar-denominated revenue into rubles to pay government taxes.