Yandex Boosted by Facebook as Cheapness Lures: Russia Overnight

Yandex NV (YNDX) climbed to a two-month high in New York as enthusiasm for Internet stocks spurred by Facebook Inc.’s initial public offering lured investors to the cheapest Russian web company.

The operator of Russia’s most popular Internet search engine, Yandex led gainers on the Bloomberg Russia-US 14 Index of Russian companies traded in New York, which was little changed at 105.82 yesterday as seven stocks rose and six declined. Futures (VEA) expiring in March on Moscow’s dollar- denominated RTS index (RTSI$) were also steady at 159,930 in U.S. trading. Urals crude oil hit an 11-week high.

Emerging-market Internet stocks from Chinese online game developer Perfect World Co. (PWRD) to South Korea’s largest search engine NHN Corp. (035420) have rallied since Facebook filed for what will be the largest IPO for an Internet company. Yandex, which has slumped 45 percent since its May IPO, trades at 38 times analysts’ earnings estimates, compared with 43 times for competitor Mail.ru Group Ltd., the largest Russian-language web company.

“Investors have taken a refreshed look at Russia’s Internet stocks on the back of Facebook’s IPO and Yandex has come out as the winner today,” said Marco Casas, vice president for equity sales at Otkritie Financial Corp. in New York. “We expect momentum to continue in the next few days as investor interest in Russian Internet names, such as Yandex, increases.”

Yandex advanced 3.6 percent to $21.39 in New York yesterday, the highest level since Dec. 7. Mail.ru (MAIL), which has a 2.3 percent stake in Facebook, fell 0.6 percent to $33.60 in London, after rising for the previous six days.

‘Yandex Undervalued’

Internet advertising in Russia will increase 25 percent this year from 2011, while the overall ad market will probably expand 10 percent, HSBC Holding Plc analyst Jean Kaplan wrote in a Jan. 13 report. The Internet’s share of total Russian advertising will jump to 26 percent by 2018, from 14 percent last year, as more Russians buy computers and access the Web, Kaplan said.

“Everybody has been buying Russian Internet stocks on the Facebook IPO news,” said Konstantin Chernyshev, head of research at UralSib Financial Corp in Moscow. “According to our estimates, Yandex is undervalued by 26 percent. Yandex is cheaper than Mail.ru, so if you buy Russian Internet, you buy Yandex.”

The Hague, Netherlands-based Yandex’s share of the Russian search market declined to 59.7 percent in the week through Jan. 22, from 59.9 percent the previous week and below the four-week average of 59.8 percent, according to Liveinternet.ru, an Internet-service provider and researcher. Moscow-based Mail.ru’s audience rose to 8.5 percent in the week to Jan. 22, from 8.1 percent the week before and above the four-week average of 8.2 percent, the data showed.

Search Share

Yandex, which reports fourth-quarter earnings on Feb. 22, introduced a free search application for the Apple Inc. iPhone in December, part of an effort to expand its mobile offerings.

Yandex’s search share fell to 59.4 percent in the week through Jan. 29, while Mail.ru’s rose to 9 percent, Liveinternet data showed. Mountain View, California-based Google (GOOG) Inc.’s share of the Russian search market fell to 25.5 percent from 25.7 percent the previous week. Google trades at 14 times analysts’ earnings estimates.

“Yandex has been a laggard among Russian equities, so this is a chance to play catch-up.” Tom Furda, director of Russian equity sales at Auerbach Grayson & Co.’s Moscow-based brokerage partner UralSib Financial Corp., said by phone yesterday.

Falling Volatility

The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, was little changed at 30.95, the lowest level since Aug. 4. The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, fell for the first time in three days, losing 0.5 percent to $30.99.

Russia’s central bank meets to review key interest rates in Moscow today, after cutting the refinancing rate by 25 basis points, or 0.25 percentage point, to 8 percent in December. OAO Rosneft, Russia’s largest oil producer, will report fourth- quarter results.

American depositary receipts of OAO Gazprom (OGZPY), the world’s biggest natural gas exporter, climbed to the highest level since Nov. 8 in New York, adding 1 percent to $12.40 after its shares traded in Moscow rose 0.8 percent to 187.24 rubles, or the equivalent of $6.18. One ADR represents two ordinary shares.

Gazprom trades at 3.6 times analysts’ estimated earnings, while smaller Russian oil and gas producer OAO Surgutneftegas (SGTPY) trades at 5.8 times. Royal Dutch Shell Plc (RDSA), Europe’s largest energy company, has a ratio of 7.2, and Exxon Mobil Corp. (XOM), the world’s largest energy company by market value, has 10.2.

Gazprom ‘Unloved’

“Gazprom is unloved, it’s straightforwardly cheap and there’s every chance that you’ll see improvements in corporate governance over the next six to 12 months,” Martin Diggle, director of the $70 million Vulpes Russian Opportunities Fund (ARTRUSS), said by phone from Geneva yesterday. The Vulpes Fund lost 13 percent in 2011, ranking in the 69th percentile, according to data compiled by Bloomberg.

Moscow-based Gazprom said in December that it may double its dividend payout for 2011 to a record and cut planned investments for this year by 39 percent.
ADRs of Gazprom Neft, Gazprom’s oil producing arm, gained 1.1 percent to $24.90 as Brent oil for March settlement rose 0.5 percent to $112.07 a barrel on the London-based ICE Futures Europe exchange.
Urals, Russia’s chief export blend, added 0.6 percent to $112.30, the highest level since Nov. 15.

OAO RusHydro (RSHYY), Russia’s largest hydropower producer, fell in U.S. trading on concern colder weather in Russia will reduce electricity production, and as Deutsche Bank AG cut its target price for the company’s stock. RusHydro’s ADRs dropped 1.5 percent to $3.91, paring their advance to 29 percent this year.

The RTS Index (RTSI$) in Moscow rose 0.2 percent to 1,602.99, and the 30-stock Micex Index gained 0.2 percent to 1,542.39. 

By Leon Lazaroff and Halia Pavliva - Feb 2, 2012