Yandex’s Discount to Baidu Is a Buy to BofA
Yandex NV (YNDX), Russia’s biggest Internet search engine, is trading at the cheapest level in six weeks relative to China’s Baidu Inc. (BIDU), a buy signal to Bank of America Corp. and Troika Dialog as advertising revenue surges.
Yandex has retreated 27 percent from this year’s high on April 19, sending its enterprise value, or the sum of its equity and net debt, to 14 times estimated 12-month earnings before interest, taxes, depreciation and amortization last week, according to data compiled by Bloomberg. That’s a 19 percent discount versus the owner of China’s most-used search engine, the widest gap since June 22. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies listed in the U.S. rose 4.1 percent to 92.56 on July 27, gaining for a fifth week.
Bank of America Merrill Lynch raised Yandex to a buy earlier this month because it trades at a discount to Baidu and on expectations Yandex will release “strong” results for the second quarter, it said in a July 24 report. Morgan Stanley said in a report July 26 the stock will “rise relative to the industry” over the next two months. China’s economy expanded the least in three years last quarter, while Russia’s economic growth accelerated in the second quarter.
“Russia’s macroeconomic story remains strong and Yandex benefits in many ways: it gets more users, it gets more advertising revenue,” Anna Lepetukhina, an analyst at Troika Dialog, said by phone from Moscow on July 26. “When the economy grows and consumer confidence is strong, those advertisers spend more, when the economy slows and consumer confidence fades they are among the first ones who adjust.”
Russia ETF Surges
The RTS stock-index futures expiring in September rose 1.9 percent to 140,275 on July 27. The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, jumped 3.8 percent to $27.21, increasing 1.8 percent on the week, for a third consecutive gain. The RTS Volatility Index, which measures expected swings in the index futures, fell 5.9 percent to 28.88.
“We expect rapid growth of the Internet advertising sector and Yandex to stay in the lead in paid search,” Bank of America Merrill Lynch analysts including Mariya Kahn in Singapore, said in the July 24 report. “We recently upgraded Yandex to buy on the discount to Baidu and on the back of search share improvements, a more relaxed competitive environment and a number of potential good news on earnings.”
Russia’s economy grew 3.9 percent in the second quarter from 3.4 percent in the same period a year ago, Interfax news agency reported on July 25, citing the Economy Ministry’s estimate.
Yandex is expected to report on July 31 its net income in the second quarter rose 62 percent from the same period a year ago, to 1.8 billion rubles, or $56.1 million, according to the average of four analysts’ estimates compiled by Bloomberg. Yandex is also expected to report sales of 6.8 billion rubles, representing 50 percent growth, data compiled by Bloomberg show.
“The results should reflect recovery in the company’s market position and continuing growth in Russia’s online ad market,” analysts led by Konstantin Chernyshev, the head of research at UralSib Financial Corp. in Moscow, wrote in a July 27 report. “Yandex offers the best exposure to these growth prospects.”
Yandex rose 6.4 percent to $20.22 in New York, the most since March 2, on July 27 for a 6.6 percent advance on the week, compared with a 12 percent surge in Baidu’s shares. Yandex has increased at half Baidu’s pace so far this year, as the Russian company’s shares have gained 2.6 percent in 2012 compared with Baidu’s 6.3 percent growth.
Internet Search Shares
Yandex’s portion of Russia’s Internet searches rose to an average of 60.4 percent in the second quarter, from 59.4 percent in the first three months of the year, Liveinternet, an Internet service provider and researcher, said on its website.
“It’s unjustified and simply wrong that Yandex trades at such a discount to Baidu and it should go away over time,” Lepetukhina said. “Investors wait to see how sustainable the current stabilization of Yandex’s search share market is and how much it costs for the company to compete with Google.”
Russian searches using Google, the world’s largest Web- search provider, rose at a slower pace, gaining to an average 26.2 percent in the second quarter from 25.7 percent in the first quarter, the data show.
E-mailed messages left after normal business hours in Moscow and Beijing on July 27 with Ochir Mandzhikov, Yandex’s press officer, Vladimir Isaev, responsible for international media relations at Yandex, and Kaiser Kuo, a spokesman for Baidu, were not immediately returned.
Oil, Russia’s top export earner, rose on speculation that the European Central Bank and the U.S. Federal Reserve will ease monetary policy to boost economic growth.
Saving the Euro
The ECB’s Governing Council is scheduled to meet on Aug. 2 in Frankfurt. The Fed’s Federal Open Market Committee will consider the need for more stimulus at a two-day meeting that concludes on Aug. 1. German Chancellor Angela Merkel and French President Francois Hollande said on July 27 that they will do “everything” necessary to protect the euro. The remark echoed a comment by ECB President Mario Draghi, who said on July 26 that the ECB will do “whatever it takes” for the common currency to survive.
Crude oil for September delivery climbed 0.8 percent to $90.13 a barrel on the New York Mercantile Exchange on July 27. Prices have risen 16 percent since June 28 and fell 1.4 percent in the week.
Brent oil for September settlement gained 1.2 percent to a one-week high of $106.47 a barrel on the London-based ICE Futures Europe exchange. Urals crude climbed 1.5 percent to $106.45 per barrel on July 27.
United Co. Rusal, the world’s largest aluminum producer, was unchanged at HK$4.23 in Hong Kong trading as of 11:15 a.m. local time. The MSCI Asia Pacific Index (MXAP) gained 0.9 percent today on speculation European Union policy makers will take action to ease the debt crisis.
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