It’s two consecutive years in first place for the Moscow-based Bank of America Merrill Lynch trio directed by Karen Kostanian, who is hailed for “thinking about how other sector and company results and activities will impact his companies,” as one investor says. These analysts are unabashedly bullish on the sector’s prospects, reports the 38-year-old crew chief. The region’s oil and gas names are “unjustifiably cheap,” he says, and yielding more than their developed-markets counterparts, although portfolio managers are still on the sidelines. Indeed, the shares traded sideways year to date through May, against the broader market’s 3 percent gain. Additional favorables, he notes, include high oil prices and a ruble that has depreciated since the beginning of the year, as well as a significant cut in tax rates for new development in East Siberia and in the shale and offshore oil industries. The lowered levies are intended to attract the expertise of the world’s biggest petroleum companies, and such majors as Italy’s Eni, Exxon Mobil Corp. of the U.S. and Norway’s Statoil have responded. Kostanian believes the tax regime won’t be altered anytime soon. “This is probably one of the most beneficial macro environments there has ever been in Russia,” he insists, “but the institutional investor community is still hesitant to recognize it.” Money managers do, however, appreciate Kostanian’s steadfastness. “He has the confidence to stick to his view,” avers another loyalist. The BofA Merrill researchers recommend, in particular, that clients buy Lukoil, Russia largest independent oil producer, assigning its global depositary receipts a target price of $82. Management is promising a dividend payout increase, they note, and Lukoil is positioned to benefit from the tax cuts. The GDRs closed May at $56.58. Another favored name is Eurasia Drilling Co., an oilfield services provider that is headquartered in Cyprus and projected to perform well as Russia’s oil majors increase drilling. Their price objective of $33 represents a 10.4 percent premium to the GDRs’ late May value. |
Karen Kostanian Exxon Mobil Corp. Statoil America Merrill Lynch Eurasia Drilling Co.
