All about a pipeline?
Russian energy stocks have been very resilient despite the sharp drop in oil prices (see: “A look at Russian energy”, Dec 6th, 2018). Currently, we are starting to see weaker oil production as OPEC and Russia look to cut supply to support crude prices. However, Russian energy firms also supply 40% of the E.U.’s natural gas needs, and export capacity is expected to double following the competition of Nord Stream 2 pipeline. Additionally, relative to their global peers, Russian energy firms are more profitable (ROE 16% vs. 10%), and return more to investors through higher dividend yields (5.6% vs. 4.4%). They also enjoy substantially lower leverage and trade at a 50% discount to global energy firms. While there could be some near-term risks, such as escalating tensions with the U.S., the long-term tailwinds remain intact.
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