Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a714460
Why Alken's AA-rated duo are piling back into Russia
by James Phillipps on Nov 05, 2013 at 15:46
‘As a result, Gazprom’s volumes should grow significantly over the next few years. Europe is an important driver of value for the company – given the high prices Gazprom charges compared to its domestic market. It is hard to justify Gazprom’s current 3x earnings valuation. The last few years have been difficult, but we think the company has turned a corner.’
Festa also plays down concerns about Gazprom being part state-owned, saying that the government is urging these companies to adopt IFRS accounting standards. He said if Gazprom currently pays its dividend based on Russian accounting standards, which has a much lower base for earnings and it was to follow IFRS standards, this would see Gazprom’s dividend ‘double to almost 10%.’
'Corporate governance is improving'
Poor standards of corporate governance are one of the main reasons why Russia has traditionally traded at a discount to the broader emerging markets universe, but Walewski believes there are clear signs this is improving.
‘The Russian state needs to attract foreign capital and is working hard to this end. On a recent trip to Russia we witnessed President Putin answer questions from a room full of investors for three hours. This is something we have never seen in Western Europe before,’ Walewski said.
‘While you can argue all you want about corporate governance and political risk, the government is a major shareholder in Sberbank and Gazprom, so we believe our interests are aligned.’
However, not all investors share this view. Guy Stern, who heads the team behind the Standard Life Investments Global Absolute Return Strategies fund, last month removed its long only Russian equity position, citing a lack of business transparency in the country. He had been backing the Russian stock market as a play on a potential oil price spike due to tensions in the Middle East.
‘Russian equities gave us protection against this but we can get that now from the basket of oil majors. We expected progress to be made in terms of reducing corruption in the Russian economy but things have not evolved as we had hoped,’ Stern said.
Over one year to the end of September, Alken Absolute Return Europe is up 13.9% compared to an Alternative Ucits- Long/Short Equity sector average return of 8.3%.
News sponsored by: