market folly

We're posting up notes from the Invest For Kids Chicago Conference 2017.  Next up is Rajiv Jain of GQG Partners who pitched long Sberbank (SBER.RU).


Rajiv Jain's Invest For Kids Chicago Presentation: Long Sberbank

Russia is not well covered, and the scant coverage is one-sided.  Rajiv has been looking at Russia for 20 years but has missed each of the two bear and bull markets.  Investors see a banana republic, politicians see an existential threat – reality is that things have improved quite a bit.  Despite sanctions, oil volatility, no foreign investment, etc. Russia actually has a good balance sheet and runs a tight ship.  Look at car sales, construction activity, etc.

Now has an independent central bank, and rates should decline.  World Bank “ease of doing business” survey now has Russia #35 in the world, better than Brazil, India or China.  MSCI Russia has 8% CAGR past 20 years – better than China.  Sovereign CDS at 5-year low – equity market is skittish, but bond market is sanguine.

Sberbank has > 50% of mortgages, >40% of retail deposits and loans.  20.8% ROE in 2016 at 1.3x TBV and 5.7x estimated FY18 earnings, all amidst a recession; ROA trough was 70-80bps in 2015 during very difficult macro conditions; very hard to find a bank anywhere in the world with an ROA above 1% like Sberbank’s.

25% dividend payout (3% yield) should rise, and yield could ultimately be 7-8%.  Systemically important.  Massive industry consolidation, flight to quality, technology all help Sberbank.  Earnings could grow 7-10% per year; pre-GFC it traded 2.0-2.5x book; at 10x earnings could return 20%compounded.


For more from this event, check out the rest of the presentations from Invest For Kids Chicago 2017.