The cheapest valuation on record for shares of OAO Gazprom, the world’s biggest producer of natural gas, is prompting Chairman Viktor Zubkov to buy a stake for the first time since his appointment in 2008.
American depositary receipts of Gazprom lost 0.5 percent last week to $7.83, sending valuations to 2.5 times reported earnings, a 65 percent discount to the average multiple for companies on the MSCI Emerging Market Energy Index. Gazprom traded at 2.1 times earnings on June 21, a record low. The Bloomberg Russia-US Equity Index slid 0.4 percent last week to 90.79, while futures on Russia’s dollar-denominated RTS Index were little changed at 133,500 in U.S. hours on Aug. 2.
Zubkov, a former prime minister, acquired a stake valued at $917,000 on July 24, a month after the market capitalization of Russia’s gas export monopoly plunged to a five-year low of $76.7 billion. Shares of state-run Gazprom have dropped since 2008 after the company increased its spending plans amid declining exports to Europe, its biggest market, and as consumers won price disputes against the producer.
“It’s a very smart move and a good strategy to help increase capitalization of the company,” Ilya Balakirev, senior analyst at UFS Finance Investment Co. in Moscow, said by phone Aug. 2. “Russian companies are fundamentally undervalued and no one understands the depth of the discount better than those who run the companies.”
Russia’s Micex Index, the cheapest among 21 emerging markets tracked by Bloomberg, trades at 5.3 times estimated earnings, compared with ratios of 14.2 for India’s S&P BSE Sensex Index, 13.8 for Brazil’s Ibovespa and 8.9 for China’s Shanghai Composite Index.
The RTS Volatility Index, which measures expected swings in the stock futures, was little changed at 21.11 Aug. 2. The Market Vectors Russia ETF, the largest exchange-traded fund tracking Russian stocks, lost 1.6 percent last week to $26.30.
Sergei Kupriyanov, the Moscow-based Gazprom spokesman, declined to comment on Zubkov’s purchase when contacted by Bloomberg News by phone on Aug. 1. The company’s board said that shares were “strongly underestimated” by the market, according to a May 21 statement.
Gazprom’s ADRs settled at a 0.2 percent discount to the company’s Moscow-listed shares, the biggest gap in a week. Gazprom fell 1.3 percent to 128.38 rubles in Moscow Aug. 2, losing 0.3 percent last week.
Net income will drop as much as 10 percent this year because of repayments to European customers and higher taxes, Chief Financial Officer Andrey Kruglov said in Moscow June 27.
“The market underestimates Gazprom’s potential and we recommend buying it because it will be forced to improve its corporate governance dramatically due to competition,” Dmitry Loukashov, an oil and gas analyst at VTB Capital, said by phone from Moscow on Aug. 2.
Gazprom plans a stock options program for top managers by the end of 2013, Interfax news agency said on July 16, citing a company’s presentation to investors.
Zubkov joins OAO Lukoil’s billionaire chief executive officer Vagit Alekperov, who more than quadrupled his stock purchases to $618 million this year from $148 million in 2012, data compiled by Bloomberg show.
George Rizhinashvili, a deputy chairman of renewable energy producer OAO RusHydro, boosted his stake almost sixfold since November, company filings showed in May.
ADRs of RusHydro were the biggest gainers in the Russia-US Index last week, climbing 3.6 percent, while CTC Media Inc. led declines after retreating 6.5 percent.