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VTB Overlooked on Price Estimate Gap: Russia Overnight

Oct. 21 (Bloomberg) -- VTB Group is trailing the average analyst target for the stock by the most among eastern European lenders, a sign to Veles Capital and Sovlink Securities that Russia’s second-largest bank is undervalued.

Analysts’ price target on VTB’s Moscow-listed share is 48 percent above the stock price, data compiled by Bloomberg show. Futures on VTB’s Moscow-listed stock lost 0.7 percent by 12:46 p.m. in Moscow. The lender’s global depositary receipts advanced 3.2 percent last week in London to $2.73, the highest level since Sept. 23. The Bloomberg Russia-US Equity Index of the most-traded Russian shares in the U.S. rose to an eight-month high as RTS Index futures slipped in U.S. hours.

VTB has dropped 19 percent this year after second-quarter profit missed estimates, while OAO Sberbank, the nation’s largest lender, has rallied 13 percent. The drop sent valuations to 5 times estimated earnings, a 44 percent discount to the average multiple for companies on the MSCI Emerging Market Banks Index. Seven of 11 analysts covering VTB recommend buying the shares, according to data compiled by Bloomberg.

“VTB enjoys all the privileges of a major state bank in Russia, meaning lower risks and easier access to capital,” Olga Belenkaya, an analyst at Sovlink Securities in Moscow, said in a telephone interview Oct. 18. She has a hold recommendation on the bank’s London-listed stock. “And yet somehow the market overlooks that.”

Analysts’ buy ratings on VTB Group’s Moscow-listed stock increased to the highest level since February 2009, while Sberbank’s buy ratings fell to a three-year low this month, according to data compiled by Bloomberg.

Belenkaya’s target price on VTB’s London-listed GDRs implies a 25 percent gain. The depositary receipts dropped 0.6 percent to $2.719 in London, while the Moscow-listed shares declined 0.1 percent to 0.04325 rubles today.

‘Sberbank’s Shadow’

“VTB has been hiding in Sberbank’s shadow,” Ivan Manaenko, head of research at Veles Capital in Moscow, said by phone Oct. 18. “It has been undervalued by the market. VTB has a lot of potential for growth, the problem is that it lacks triggers for a rally.”

Investors were concerned VTB exposed itself to additional risks when it bought non-banking assets, including the purchase of mobile phone company Tele2 Russia Holding AB for $3.55 billion in the spring, both Manaenko and Belenkaya said. The bank, which had pledged to cut its stake in Tele2 to below a controlling level by next March, sold 50 percent of the carrier Tele 2 to Yury Kovalchuk, an ally of President Vladimir Putin, according to the bank’s Oct. 17 statement.

Bad Loans

VTB said Sept. 12 that second-quarter profit missed estimates as it increased provisions to cover problem loans.

American depositary receipts of Sberbank added 3.2 percent last week to $13.15, the highest level since May. The stock added 2.5 percent last week in Moscow to 103.35 rubles, or $3.24. Each ADR represents four shares.

The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, rose for a third week, adding 1.7 percent to $29.93. The RTS Volatility Index, which measures expected swings in the index futures, fell 1 percent to 20.96, while RTS Index futures expiring in December declined 0.2 percent to 151,380 in U.S. hours.

VimpelCom Ltd., Russia’s third-biggest cell phone company by subscribers, rallied 6.8 percent last week to $13.11, the highest level since June 2011. Trading volume on Oct. 18 was 29 percent higher than the average daily level for the past three months in New York. It posted the biggest increase on the Bloomberg Russia-US gauge last week.

Polyus Gold International Ltd., Russia’s biggest gold producer, added 3.6 percent to $3.15 on Oct. 18 in New York. It climbed 4.7 percent last week, the biggest advance since January. Polyus, in which billionaire Suleiman Kerimov holds 40 percent, said in an Oct. 18 statement that sales of the metal rose 21 percent in the third quarter from a year ago.

United Co. Rusal, a Moscow-based aluminum producer, dropped 0.4 percent to HK$2.29 in Hong Kong trading as of 10:41 a.m. local time. The MSCI Asia Pacific Index gained 0.2 percent.

To contact the reporter on this story: Halia Pavliva in New York at

To contact the editor responsible for this story: Tal Barak Harif at

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