BofA to UBS Back Sberbank on Valuation: Russia Overnight

OAO Sberbank, Eastern Europe’s biggest lender, is a top pick for analysts at Bank of America Corp. and UBS AG on bets a government clampdown on smaller banks will boost the state-controlled company’s market share.

The shares gained 1.7 percent in Moscow last week and have outperformed the MSCI Emerging Markets Bank Index this year after the central bank shut 30 small lenders since July 1 amid a push to tighten regulation. The shares trade at 6.1 times estimated earnings, a 20 percent discount to the banking gauge and the narrowest gap on record, data compiled by Bloomberg show. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. slumped last week.

Sberbank, which counts 70 percent of Russia’s population as customers, reported a jump in consumer deposits in 2013 as it benefited from the campaign to clean up the financial system. Moscow-based Renaissance Capital predicts shares will surge 41 percent this year, while Bank of America projects a 45 percent jump and UBS sees a 19 percent gain.

“Sberbank, already a leader, is winning an even bigger market share as customers switch from smaller banks and lending intensifies,” Mikhail Shlemov, an analyst at UBS in Moscow, said by phone Jan. 17. “The bank benefits from an inflow of both deposits and loans even as economic growth has slowed. The bank’s management has increased control over costs and that is promising too.”

Sberbank is the only bank in the emerging Europe, Middle East and Africa region to make it to UBS’s top pick list for 2014, Shlemov said. He has a buy recommendation on the stock with a price estimate of 120 rubles ($3.58).

‘Well Positioned’

“We like Sberbank a lot,” Shlemov said. “It has a lot of potential due to its fantastic footprint in Russia, low valuation, and efficient management.”

Bank of America reiterated its buy recommendation on the stock and a 12-month target price at 146 rubles, analysts led by Olga Veselova in Moscow said in a Jan. 17 report.

“Management continues to deliver, and the bank has released an upbeat new five-year strategy,” Veselova said in the report. “Fundamentally, Sberbank is increasingly well positioned to compete in the changing operating environment, and will increase market share in 2014.”

With equity at 1.7 trillion rubles ($55 billion), Sberbank serves more than a fifth of Russian businesses and accounts for about 46 percent of retail deposits and 34 percent of corporate loans, the lender says on its website. Sberbank’s equity equals about 27 percent of Russian banks’ aggregate capital.

Rising Profits

Sberbank added 0.8 percent to 101.91 rubles by 4:51 p.m. in Moscow today. The stock gained 8.7 percent last year, after rallying 17 percent in 2012.

Deposits increased 8.7 percent as of Jan. 1 from 7.4 trillion rubles at the start of December, according to a Jan. 15 statement on Sberbank’s website. Deposits rose 21 percent from the year-earlier period.

The central bank has intensified efforts to clean up the financial system since July 1 when Elvira Nabiullina succeeded Sergey Ignatiev as governor. Nabiullina is striving to tighten regulation of banks and curtail a net capital outflow that was forecast at about $55 billion last year.

The regulator canceled the licenses of AKB Novokuznetsk Municipal Bank OAO earlier this month, saying the Siberian lender made high-risk loans and allowed its owners to borrow from the company. Master-Bank, Russia’s 41st largest lender by assets, had its license revoked in November for money-laundering violations.

Bank Rossii today revoked licenses of Makhachkala-based Imbank and Kurgan-based Nadezhnost, according to statements on its website.

‘Stable Company’

“Russian people don’t want any risk,” David Nangle, head of research at Renaissance Capital, said by phone from London on Jan. 17. “They are shifting money form small banks to big and stable ones. For investors, Sberbank is not just a stable company that gives access to Russian market, it’s also a company that has gone through reforms and emerges as a first-class bank.”

Qiwi Plc, the electronic-payment operator, plunged 22 percent last week in New York on concern a draft anti-terrorism bill will limit the amount that people can transfer via online payment accounts without providing personal information will be limited to 1,000 rubles a day. President Vladimir Putin has called for increased security in the aftermath of the December Volgograd attacks that killed more than 30 people.

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