Today, Sberbank Investment Research is publishing a major body of investment research examining trends and opportunities across Russia’s consumer-linked equity sectors: Retail, Staples, Agriculture, Financials, Telecoms, Media & IT, Real Estate and Transportation. The report analyses key Russia/CIS sectors and companies which are strongly linked to the ‘mega-theme’ of rising domestic consumption and sets the Russian investment opportunity into a global context.
Titled “Consumer Speed Kings: Team Russia Leads the World” the main report offers investors a unique analysis of how the Russian investment case compares to other emerging markets including Brazil, India, China, South Africa and Turkey as well as the Eurozone and the US. In a highly differentiated piece of analysis the team at Sberbank Investment Research combines its expertise across Economics, Strategy and Sector Research to link the top-down domestic consumption growth mega-theme with a bottom-up assessment of individual equity investment opportunities.
A summary of our major findings are highlighted below:
The report highlights the fact that while some international investors continue to view Russia as predominantly an energy play, in reality more than 80% of domestic GDP growth has been from the consumer-related sectors over the past eight years. According to Andy Smith, Head of Equity Research at Sberbank Investment Research, Managing Director: “An undiscovered secret is that Russia is as much a consumer story as it is an oil proxy. But because two-thirds of the stock market is made up of stocks in extractive industries the remaining one-third - those companies which contribute 80% to economic growth – have tended to be penalised by a lack of understanding.”
Sberbank Investment Research believes Russia’s consumer-related sectors are trading at 25-50% valuation discounts to comparable consumer sectors in emerging markets and highlight that growth forecasts for Russian companies are – in most cases - clearly superior. Andy Smith predicts that “the real nature of Russia’s consumer growth story is appreciated then the current excessive risk premium applied to the market overall will be shrunk”. The report presents a technical analysis of the wider Russian consumer sector’s implied ‘equity risk’ premium versus the other BRIC markets and concludes that this premium is trading near a ten year high and is anomalous relative to key peers on fundamentals.
Sberbank’s analysts also identify the opportunity for increased M&A activity in the Russia consumer sectors both in terms of cross-border deals, domestic consolidation, joint ventures, mergers and strategic alliances. The consumer industries remain highly fragmented across Russia, offering opportunities for consolidation as companies strive for efficiency gains. Russia’s entry into the WTO last August is also reviewed – the team believes this will act as a powerful catalyst for consolidation as domestic operators face more external competition. Smith observes: “we believe that the slow-down in consumer markets in Europe and the US will prompt more CEOs to step-up the pace of M&A to replace foregone growth …. In this sense, the combination of growth and value we identify across Russia’s consumer stocks seems hard to ignore.”
From a strategic perspective the analysts at Sberbank believe that Russia offers significant potential for foreign strategic investors especially across agriculture, food production, modern retailing, pharmaceutical, leisure, consumer banking (convergence of mobile technologies), health-care, logistics, information technology, automotive, airline and consumer services. The ‘Consumer Speed Kings’ report also focuses on how investors may profit from playing the structural themes of rising food prices and the need for rising agricultural productivity.
In parallel with the launch of “Consumer Speed Kings”, Sberbank CIB has also launched the Sberbank CIB ‘Ivanov Index’. Investors will shortly be able to participate directly in the expected continued growth of Russia’s consumer sectors through a proprietary, optimized basket of 24 listed Russian equities operating in the consumer space. The basket will be priced daily (Bloomberg ticker IVANSCIB), rebalanced quarterly, and traded by the Global Markets team at Sberbank CIB. The back-tested results of this ‘Ivanov Index’ are particularly impressive and offer investors potentially superior returns at acceptable levels of diversified risk and volatility. Further information on the composition of the basket is contained in the ‘Consumer Speed Kings’ report, available to clients and customers of Sberbank CIB. Please contact your sales representative or the Sberbank CIB PR team to obtain your copy.
Sberbank Investment Research has also launched its inaugural survey of the Pan-Russian Consumer, the Sberbank CIB ‘Ivanov Consumer Confidence Tracker’ – a bi-monthly publication covering Russian consumers’ spending, saving and confidence patterns across the country. We chose “Ivanov” to represent the most common Russian family name. The Ivanovs represent middle-class Russia.
Apart from publishing a headline consumer confidence index, this regular, proprietary publication will provide a set of leading indicators as to the most important trends across the fast-growth consumer sectors in Russia - including Retail, Banking, Telecoms, Media, I.T., Real Estate and Transportation.
Paolo Zaniboni, Head of Sberbank Investment Research, Managing Director, CEO of Sberbank CIB UK Ltd, said: “Our overall aim is to assist investors, policy-makers and other stakeholders better understand current and likely future dynamics of the rapidly-changing Russian consumer landscape and therefore assist their investment decisions and returns. This type of research constitutes an important differentiating and value-added set of unique products that the Sberbank Investment Research team continues to strive toward producing”.
The survey, which is executed by the market research agency Cint on behalf of Sberbank CIB, will be conducted every two months under a methodology that closely mirrors that of the quarterly Federal State Statistics (FSS) Service of Russia and other EU confidence surveys but adapted to encompass a wider set of questions relevant to Russia’s middle-income consumers. The survey sample is 2,300 people, aged 18 to 65, and living in 164 Russian cities with a population of over 100,000 inhabitants. The tracking error is below 2%.
The inaugural “Tracker” shows an overall score of -4% which is more optimistic than the 4th Quarter 2012 score of -8% published in the last FSS survey.
Sberbank CIB – Ivanov Consumer Confidence Tracker, Jan 2013
|Sberbank Investment Research, Jan ’13||State Statistics Service, 4Q12|
|Overall index score||- 4%||- 8%|
|Personal wealth, last 12m||- 8%||- 8%|
|Personal wealth, next 12m||27%||- 3%|
|Country wealth, last 12m||-16%||- 7%|
|Country wealth, next 12m||6%||- 3%|
|Big purchases conditions||-28%||- 19%|
Source: Cint, State Statistics Service, Sberbank Investment Research
The main findings of our inaugural survey are shown below:
Further Background to Russia’s Consumer Story