By Andrei Skvarsky.
Russia’s CreditBrokerService (BCS) has become {{{*}}} the first broker to launch the research coverage of the stock of the Moscow Exchange, issuing a “buy” recommendation but pointing out that equity trading volumes in Russia for the fourth quarter of 2012 showed a year-on-year drop of 70%.
BCS analyst Olga Naydenova suggests a price target of 68 rubles ($2.2) per Moscow Exchange share compared with the price of 55 rubles ($1.8) set when the bourse launched its initial public offering a month ago.
“The Exchange has a strong diversified business model, offering a unique exposure to the reform‐based growth in Russia’s financial markets with a substantial countercyclical component that protects revenue. The ongoing development and modernization of the financial infrastructure should help repatriate flows, while new public offerings via the domestic exchange should also support volume growth,” she says.
“The story has several major risks – business model changes, competition and country risks – that justify a discount to its peers on multiples at this stage,” Naydenova says.
The BCS’s London-based head of equity and derivatives sales and trading, Luis Saenz, told EmergingMarkets.me that the Moscow Exchange “has mostly treaded water since listing a month ago at 55 rubles but we believe the stock is undervalued”.
However, trading volumes pose a problem, he warned. “Naturally, a key driver for the exchange are volumes. In Russia, Q4 equity volumes were down 70% year on year. As [US tycoon Warren] Buffet likes to say, ‘every storm runs out of rain’, and we expect some mean reversion,” he said.
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