SBRCY - Sberbank

[TwoCitiesCapital]

I've owned it since 2014. Big fan. Was buying huge amounts between $7 and $3 on the way down. Sold about 15% of the position between $18-20 and repurchased them at $14. Looking to add on any weakness.

[John Hjorth]

Tom,

 

Thank you for the Mittleman quotes. To me they say a lot about the mindset the investor need to have to invest in this space [not just Russian banking, but perhaps also Russian stocks in general].

 

Russian stocks are in general so much out of favor here on CoBF. If I remember correctly, we only have topics about Lukoil and Gazprom on here, however I might be mistaken [Please correct me in this topic, if I'm wrong].

 

Tom, do you have a link to where you've got the quotes? - Thank you in advance.

 

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Wfearful_Bgreedy,

 

Thank you for starting this topic!

[scorpioncapital]

You can invest indirectly in Russia I suppose by owning some stocks that have large manufacturing or business interests there. It might be safer...similar to Buffett's strategy of buying multinational US corps that have large foreign business ops.

 

 

[jouni1]

You can invest indirectly in Russia I suppose by owning some stocks that have large manufacturing or business interests there. It might be safer...similar to Buffett's strategy of buying multinational US corps that have large foreign business ops.

yeah like BP

[John Hjorth]

Here, I'm simply quoting TwoCitiesCaptal, from the Gazprom topic here on CoBF, also ref. TwoCitiesCapital's post not so long ago in this topic - the whole post is worthy of reading to anybody the least interested in Russian stocks, in my humble opinion :

 

Gazprom (OGZPY)

I think political and associated "klepto" risks are  more than reflected in the very cheap price. While this could have some really nasty surprises, it also has multibagger potential. The ~6% dividend shows at least some shareholder consideration.  About a 2.5% position.

 

I've been sitting on this damn thing for more than five years now. [very small position]. I suppose TwoCitiesCapital does, too. Waiting for the gas to flow into China in 2018. We should discuss it more in depth in its separate topic in the Investment Ideas forum.

 

I'm still sitting on shares I purchased a few years back following the sanctions. I added once or twice as it was falling, but haven't added any in the last year or two. I've been adding to LUKOY instead because it seems to respond more readily to positive news than Gazprom which has just been stuck in the mud.

 

I had pretty heavy allocations to Russia via Gazprom, Lukoy, and Sberbank and Gazprom has been by far the largest disappointment. LUKOY has performed reasonably well and Sberbank has been one of the best investments of my life. All in all - I still believe Russia is the place to be looking for value - I'm less convinced that Gazprom is the company to find it in. Despite that, I'll continue to hold the shares I own simply because the priceidend are still decent and I could always be surprised. It's not too hard a case to get a valuation 2x-3x as high as today's and still trade at sizeable discounts to other majors.

[John Hjorth]

Wfearful_Bgreedy,

 

Are you even willing to discuss this [potential] investment? -No posts here from you since you started the topic.

 

-I'm willing to discuss, by the way - based on work on the thing. -However, I have no intention to talk to myself in this topic.

[Jurgis]

http://www.cornerofberkshireandfairfax.ca/forum/books/red-notice-bill-browder/

 

But then what's the point...  ::)

[John Hjorth]

Posted by thowed today in another topic here on CoBF about SBRCY:

 

... SBRCY is interesting - seems to be a great company and dirt cheap.  However institutions seem to use it almost as a quasi-tracker i.e. if they have one stock in the country, it's that one, so the price can plunge if they all go off Russia.  Of course, that also provides opportunity.

 

- Please don't say, that I'm not trying to keep this topic alive [ : - ) ].

[Ahab]

Apologies if this has already been posted. This short article by GMO from April informed my thinking on Sberbank

https://www.advisorperspectives.com/commentaries/2018/04/11/russia-a-riddle-wrapped-in-a-mystery-inside-an-enigma

On the other hand, we believe Sberbank’s dramatic fall reflects the fact that it is the most foreignowned and most liquid Russian stock (the GDR trades an average of $100 million daily in London alone) and was hard hit for liquidity, rather than for fundamental reasons. Only 3% of Sberbank’s assets were exposed to sanctioned companies. Furthermore, it is Russia’s largest bank, with 20,000 branches and 65% of the country’s deposits. It trades at 5 times current earnings and 1.3 times book value while earning 23% return on equity. It is one of the largest positions in our portfolio and we are adding to it. We’ve always said that you make more money when things go from truly awful to merely bad than when they go from good to great. Russia’s relationship with the world is now approaching truly awful.

I think what really troubles me here is not business risk (low-moderate) or price (excellent), but the known political risks of investing in Putin's Russia. Although that risk is tempered somewhat by Russia needing a functional private banking outlet  with the rest of the world. Also, the nature of the business (banking) seems to discourage the kinds of egregious corruption that one hears occur at Russia's natural resource giants. I can't invest in SBRCY for personal reasons, but it seems suitable on valuation grounds for a moderately sized position..

[John Hjorth]

Apologies if this has already been posted. This short article by GMO from April informed my thinking on Sberbank

https://www.advisorperspectives.com/commentaries/2018/04/11/russia-a-riddle-wrapped-in-a-mystery-inside-an-enigma

On the other hand, we believe Sberbank’s dramatic fall reflects the fact that it is the most foreignowned and most liquid Russian stock (the GDR trades an average of $100 million daily in London alone) and was hard hit for liquidity, rather than for fundamental reasons. Only 3% of Sberbank’s assets were exposed to sanctioned companies. Furthermore, it is Russia’s largest bank, with 20,000 branches and 65% of the country’s deposits. It trades at 5 times current earnings and 1.3 times book value while earning 23% return on equity. It is one of the largest positions in our portfolio and we are adding to it. We’ve always said that you make more money when things go from truly awful to merely bad than when they go from good to great. Russia’s relationship with the world is now approaching truly awful.

I think what really troubles me here is not business risk (low-moderate) or price (excellent), but the known political risks of investing in Putin's Russia. Although that risk is tempered somewhat by Russia needing a functional private banking outlet  with the rest of the world. Also, the nature of the business (banking) seems to discourage the kinds of egregious corruption that one hears occur at Russia's natural resource giants. I can't invest in SBRCY for personal reasons, but it seems suitable on valuation grounds for a moderately sized position..

 

Ahab,

 

A belated welcome to you here on CoBF, and thank you for posting. Going forward, please don't be a stranger! [ : - ) ]

 

Above I have taken the freedom to moderate your post with regard to what is in bold [nothing else]. Somehow, to me, yes, to a large extent, it boils down to being contrarian. I also agree with you on your considerations about SBRCY in the whole picture of the Russian financial infrastructure.

 

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What do we have to think about top management of this sucker? - Here, I'm thinking about the CEO and the Chairman of the Board in particular.

[John Hjorth]

By reading the topic "Why are Russian stocks so cheap?" I found out, that we by accident have double topics for Sberbank in the Investment Ideas forum.

 

"Old" topic is here: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/sberbank/ .

 

I will ask Sanjeev to merge the two topics, by reporting this post. I think it's worth it, because there are many quality posts in the old topic.

 

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Edit [July 10^th 2018]:

 

The two topics now merged by Sanjeev.

[Spekulatius]

But wouldn't the 50% government stake decrease in market value exceed the value of the corruption? Not sure, but I imagine they must be thinking to raise the price of the stock as it does matter to them , whether as collateral or even for future selling.

 

I don’t think the Russian government thinks about Sberbank as a market to market position. It’s a vehicle for influence, to keep the wheels of the financial system greased, including money laundry the choosen few and to keep the Russian economy running - I am not sure in which order.

[John Hjorth]

Herman Gref, CEO of Sberbank on CNBC

 

http://video.cnbc.com/gallery/?play=1&video=3000218657

 

 

http://video.cnbc.com/gallery/?play=1&video=3000218662

 

Spekulatius,

 

So you think Mr. Gref is lying here? [sorry, I really can't help it [ : - ) ] - I'm not trying to be confrontational.] I mean: What are the facts?

[Spekulatius]

Herman Gref, CEO of Sberbank on CNBC

 

http://video.cnbc.com/gallery/?play=1&video=3000218657

 

 

http://video.cnbc.com/gallery/?play=1&video=3000218662

 

Spekulatius,

 

So you think Mr. Gref is lying here? [sorry, I really can't help it [ : - ) ] - I'm not trying to be confrontational.] I mean: What are the facts?

 

Well the first interview is from 2013, which is before the Krimean invasion. Mr Gref may be capable, I honestly don’t know, but it does not mean he is in control of the situation.

[TwoCitiesCapital]

I was skeptical Sberbank would be the target of any further sanctions. Then came the reports the last few days that the bipartisan sanctions bill being put together was considering targeting all large, state owned financial institutions regardless of political affiliation and involvement.

 

1) Knowing that the Treasury and WH are both against sanctions of this scale, does anyone have an informed opinion on whether or not these get realistically implemented?

 

2) Does the restriction simply prevent further buys/sells in Russian bank equities if passed or restrict ownership in totality?

 

3) If the latter, would the receipt/processing of dividends be considered "transactions" with the sanctioned entity?

 

4) If the latter in 2), would this force ETF/MFs to liquidate exposure OR is there a credible work-aroune given jurisdiction of incorporation or using derivative products for exposure.

 

Just looking at my alternatives if the new sanctions force the sale in this pissing match

[John Hjorth]

That reads really concerning, TwoCitiesCapital, - like it really sucks.

 

SBRCY dropped on the same day the proposal for the new sanctions was released, and it dropped even more today.

 

I have more or less desperate been trying to find first hand & direct sources today since your post, and I have come up with this: Lindsey Graham - Press Release [August 2^nd 2018]: Graham, Menedez, Gardner, Cardin, McCain, Shaheen Introduce Hard-Hitting Russia Sanctions Package.

 

That list is a direct source, so to say from the horses' mouth, and appear very specific. It does not include sanctions against Russia State owned financial institutions, from what I can read.

 

And what about the drop in the price today, bigger than August 2^nd? The only "source" I can find is this SA article of today, citing "... Improvement of the situation related to sanctions against Rusal, together with the risk of imposing direct sanctions on Russian state-owned banks. ..." with no particular or specific reference or source.

 

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Something material and important may have skipped my attention during my search by my choises of keywords under search.

[Guest Schwab711]

The draft of the bill was leaked to a Russian paper:

https://www.kommersant.ru/docs/2018/_2018d140-Menendez-Russia-Sanctions-Bill.pdf

 

The sanctions will almost certainly apply to new debt and equity issuance. You will receive dividends and won't be forced to sell. I'm basing this off every modern sanctions program the US has initiated. Do your own DD.

 

However, Russian state-controlled banks will probably be shut out of most financial markets. Interest rates will probably go up and for non-Russians, FX risks will of course be greater.

 

I suppose another risk is whether the depository shares will continue to be sponsored. That would be up to JPM and LSE, pending the final language of the bill.

 

It's almost certain additional sanctions will pass on a veto-proof basis. It's the final language that's up in the air.

[TwoCitiesCapital]

The draft of the bill was leaked to a Russian paper:

https://www.kommersant.ru/docs/2018/_2018d140-Menendez-Russia-Sanctions-Bill.pdf

 

The sanctions will almost certainly apply to new debt and equity issuance. You will receive dividends and won't be forced to sell. I'm basing this off every modern sanctions program the US has initiated. Do your own DD.

 

However, Russian state-controlled banks will probably be shut out of most financial markets. Interest rates will probably go up and for non-Russians, FX risks will of course be greater.

 

I suppose another risk is whether the depository shares will continue to be sponsored. That would be up to JPM and LSE, pending the final language of the bill.

 

It's almost certain additional sanctions will pass on a veto-proof basis. It's the final language that's up in the air.

 

Thanks for your input. I'm not concerned with holding, limited liquidity, shutting Sberbank out of additional debt/equity issuances. They're not very reliant on foreign markets to my knowledge since the initial round of sanctions on 2014.

 

My concern was being forced to sell or being restricted from receiving dividends.

 

This is a long-term hold for me, and as long as it remains this cheap, a position I'll be consistently adding too. Crazy that you get 20+% ROEs at less than book value.

 

A rise in interest rates boosts their income. A crisis in their economy boosts their market share of assets. And the currency, long-term, will be tied more closely with oil than anything the U.S. does.

 

All in all, still a very decent value proposition as long as I'm not forced to sell into pessimism

[Guest Schwab711]

The draft of the bill was leaked to a Russian paper:

https://www.kommersant.ru/docs/2018/_2018d140-Menendez-Russia-Sanctions-Bill.pdf

 

The sanctions will almost certainly apply to new debt and equity issuance. You will receive dividends and won't be forced to sell. I'm basing this off every modern sanctions program the US has initiated. Do your own DD.

 

However, Russian state-controlled banks will probably be shut out of most financial markets. Interest rates will probably go up and for non-Russians, FX risks will of course be greater.

 

I suppose another risk is whether the depository shares will continue to be sponsored. That would be up to JPM and LSE, pending the final language of the bill.

 

It's almost certain additional sanctions will pass on a veto-proof basis. It's the final language that's up in the air.

 

Thanks for your input. I'm not concerned with holding, limited liquidity, shutting Sberbank out of additional debt/equity issuances. They're not very reliant on foreign markets to my knowledge since the initial round of sanctions on 2014.

 

My concern was being forced to sell or being restricted from receiving dividends.

 

This is a long-term hold for me, and as long as it remains this cheap, a position I'll be consistently adding too. Crazy that you get 20+% ROEs at less than book value.

 

A rise in interest rates boosts their income. A crisis in their economy boosts their market share of assets. And the currency, long-term, will be tied more closely with oil than anything the U.S. does.

 

All in all, still a very decent value proposition as long as I'm not forced to sell into pessimism

 

I figured you understood the risks but just in case I'm wrong about this sanctions bill (since I haven't read it yet) I had to throw a CYA in. Glad it helped.

 

It's an interesting bank. Hard to understand how onerus it will be yet but I've been doing work on them.

[John Hjorth]

Wall Street Journal: Anatoly Kurmanaev [August 20^th 2018]: Putin's Unlikely Ally in His Standoff With the West: His Central Banker - Elvira Nabiullina has earned an unusual degree of freedom to buttress an economy buffeted by sanctions. [Article outlined here.]

 

 

 

 

 

 

 

 

 

[mjm]

looking tasty to me. anyone buying

[Spekulatius]

looking tasty to me. anyone buying

 

The fat lady hasn’t sung yet, imo. When she does, many EM banks will look very very cheap and SBRCY will be one of them.

[TwoCitiesCapital]

Very possible. If it gets cheaper, I'll buy more.

 

Yes, I'm buying now and have been at just about every drop below $13. Have been selling Lukoil recently to add to Sberbank so haven't been increasing overall $ exposure in recent weeks, just rebalancing within my Russian basket. Will be adding new $ if prcies remain where they're at though.

[Spekulatius]

Very possible. If it gets cheaper, I'll buy more.

 

Yes, I'm buying now and have been at just about every drop below $13. Have been selling Lukoil recently to add to Sberbank so haven't been increasing overall $ exposure in recent weeks, just rebalancing within my Russian basket. Will be adding new $ if prcies remain where they're at though.

 

It’s cheap, but a significant discount does (and should) apply. That discount changes, given the perception of emerging Markets and  Russia specifically. I personally would rather invest in countries like Brazil (which has come down significantantly too) rather than Russia, to play and emerging market rebound.

[mjm]

what brazilian stocks pique your interest?  TIA