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BlackRock’s Vecht: four reasons to back Gazprom
by Robert St George on Oct 15, 2013 at 07:40
Gazprom’s share price has halved since its peak before 2008’s crash, leaving it trading on less than three times its earnings.
Vecht (pictured) appreciated that Gazprom has been ‘out of favour’, but argued that this extremely low multiple ‘overlooks a number of virtues’.
First, the manager noted that the Russian giant is ‘one of the most profitable companies in the world’. According to data from Thomson Reuters, Gazprom enjoys a net profit margin of 25% compared with 8.5% from its sector, and a return on equity of 14.74% against the sector’s average loss of 1%.
Second, Vecht flagged Gazprom as an impressive dividend stock. Its most recent payout was almost two-and-a-half times greater than that delivered before the credit crisis in 2008, adequately covered by net income that has risen by 50% through the same period.
Third, Vecht supposed that Europe’s return to growth would buoy Gazprom, observing that Russia’s gas exports to the continent were 25% higher in September than at the same point of 2012.
Finally, Gazprom’s new deal with China was welcomed by Vecht. The terms are still to be finalised in the months ahead, but initial expectations suggest the contract will be worth the equivalent of a third of the group’s entire European exports.
‘Typically export operations are much more profitable than domestic sales, so the potential impact on profitability is larger than the volumes alone would suggest,’ said Vecht. He added that it would also diversify Gazprom’s revenues, which have hitherto been dependent on Europe.
Through his BlackRock Emerging Europe trust, Vecht currently holds a stake of approximately £11 million in Gazprom. Since BlackRock began managing the fund in 2009, it has returned 83% compared with 68% from its benchmark MSCI EM Europe 10/40 index.
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