Gazprom Top Pick to Bernstein for 2014: Russia Overnight

OAO Gazprom’s biggest drop in six months is a buying opportunity after the world’s biggest producer of natural gas increased exports to Europe to a record last year, Sanford C. Bernstein & Co. said.

American depositary receipts of Gazprom fell 4.2 percent to $8.29, the deepest decline since June 19. The retreat sent valuations to 3.2 times estimated earnings, a third of the average multiple for its peers. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in New York dropped 1.7 percent to a 100.65, the worst decline in six months.

While a price reduction on Gazprom’s supplies to Ukraine and a delayed agreement with China sent shares down 11 percent in 2013, a 16 percent increase in the company’s exports will boost earnings, Bernstein said. Gazprom, which provides about a quarter of Europe’s natural gas, said on Dec. 30 that it increased sales to the region as customers won price reductions and colder weather boosted demand.

“All this negative news flow has been overshadowing a huge increase in Gazprom’s exports to Europe and the fact that gas supply remains exceptionally strong,” Rob West, an analyst at Bernstein, said by phone from London yesterday. Gazprom, his favorite pick among Russian stocks for 2014, will gain 52 percent this year, West said.

Supplies to Europe rose to 161.5 billion cubic meters last year. The previous record was 160 billion cubic meters in 2008, according to the company’s 2012 financial report.

$1 Billion

Every 5 percent increase in Gazprom’s gas exports means that the company gets an additional $1 billion in annual revenue, West said.

Gazprom lost 32 percent in the three years through 2013 and trades at the cheapest level compared with global peers, according to data compiled by Bloomberg show. Russia cut the price it charges for natural gas to Ukraine to $268.5 per 1,000 cubic meters from about $400, Russian President Vladimir Putin said in Moscow Dec. 17.

Chief Executive Officer Alexey Miller said Dec. 17 that Gazprom is seeking to reach a deal to export gas to China by February after the company failed to reach an agreement following more than a decade of talks.

Gazprom fell 2 percent to $8.38 in London, the lowest level in two weeks. One depositary receipt equals two Moscow-listed shares. Russian markets are closed for a national holiday this week.

The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, slumped 3.3 percent to $27.93 yesterday, with trading volume double the average daily level for the past three months.

United Co. Rusal, a Moscow-based aluminum producer, rose 0.9 percent to HK$2.32 at 10:35 a.m. in Hong Kong trading. The MSCI Asia Pacific Excluding Japan Index fell 1.3 percent, heading for its biggest loss since Nov. 21.

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