Sberbank Rally Seen Fading as Russia-Turkey Rift Increases Risk

  • Lender's shares have advanced 89 percent in Moscow this year
  • Stock's 14-day RSI near level some analysts flag as sell sign

The rally in Sberbank PJSC, the Russian largest lender that has almost doubled this year, appears to be running out of steam.

The Moscow-traded stock, which lost half its value in 2014, has rallied about 40 percent since early October, widening its advance this year to 89 percent, three times more than the benchmark Micex Index. The stock’s 14-day relative strength index has fluctuated around 70 since early October, near the level some technical analysts see as a signal a security is poised to decline.

The gain in Sberbank, which is Russia’s largest lender and widely seen as a proxy for the economy, came as data signaled that the country’s first recession since 2009 may have reached its bottom and fighting subsided in eastern Ukraine. The state-run bank is one of the Russian companies targeted by U.S. and the European Union sanctions for the country’s alleged support of a rebellion there. The prospects for a rapprochement among the former Cold War adversaries faded as geopolitical tension escalated after Turkey, a NATO member, shot down a Russian warplane last month.

The lender’s stock “seemed cheap for a long while, but now it’s not the case anymore,” Olga Naydenova, an analyst at BCS Financial Corp., said by phone from Moscow. “Sberbank is still the strongest name in the industry, but we see the strength as largely priced in. It looks like the geopolitical uncertainty is now again on the rise.”

After upgrading Sberbank’s Moscow-listed shares to buy in October, Naydenova switched her recommendation to hold in late November as the stock advanced 40 percent in the span. BCS and Otkritie Capital abandoned their bullish calls following the rally, while VTB Capital recommended selling the stock.

Sberbank has been hit by slumping domestic demand as oil, the country’s biggest export, sells for around the lowest price in six years. Profit for 2015 will decline 25 to 30 percent from a year earlier, Chief Executive Officer Herman Gref said last week. The bank, which holds about half the country’s deposits, is still best positioned in the market to withstand volatility and manage risks, analysts from UBS to UralSib to BCS say.

Russia’s credit-rating outlook was raised to stable from negative by Moody’s Investors Service last week, which cited a stabilization of external finances and a diminished likelihood of the economy facing a further “intense shock” in the next 12 to 18 months after being sanctioned over Ukraine.

On a scale from 1 to 5, Sberbank has a consensus recommendation of 4, the third-best among seven global peers, data compiled by Bloomberg show. Eleven analysts rate the stock buy, while eight say hold and one advises clients to sell.

‘No Panacea’

Polina Lazich, an analyst at AK Bars Finance, upgraded the stock to hold in late November on signs the geopolitical tension was easing. Societe Generale SA’s Alan Webborn last week turned bullish for the first time since January, citing a combination of “lower funding costs, super-human cost control against a background of double-digit inflation and stabilizing asset quality.”

Ending sanctions would be “helpful but no panacea,” Webborn said in a research note last week. Sberbank will probably achieve a 16 percent return on equity in 2016, “which we see as a significant achievement in an economy which we do not expect to grow next year,” he said.

A rebound in Russian equities in early November came to an abrupt halt as Turkey’s downing of one of the country’s warplanes near the Syrian border stifled speculation that an alliance against terrorism could prompt its former Cold War foes to lift sanctions. Sberbank will assess the impact of sanctions Russia imposed Turkey on the lender’s Turkish unit Denizbank, Gref said.

Net Income

Net interest income, the difference between what a bank earns from lending and what it pays on deposits, was 263 billion rubles ($3.9 billion) in the third quarter, compared with 255 billion rubles a year earlier, Sberbank said in a statement November. Net income declined to 65.4 billion rubles, higher than the average estimate of 62 billion rubles from eight analysts surveyed by Bloomberg. Net income in the 11 months through November fell 31 percent under Russian accounting standards, the company said Monday.

Brent crude, a benchmark used to price Russian exports, dropped 2.3 percent on Monday, widening its slump from this year’s high in May to 38 percent. The ruble dropped 2.6 percent in its fifth weekly decline against the dollar in six weeks. Sberbank slid 2.6 percent last week in Moscow and 3.1 percent in New York.

The stock gain has “outpaced the short-term and long-term ruble interest rates, and gone against declines in oil prices,” Jason Hurwitz, an analyst at VTB, said in a report late November. That leaves Sberbank “exposed to corrections in the ruble and interest rates,” he said.

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