Tuesday, December 24, 2019

A Current AIM International Equity Holding: Sberbank (SBRCY, $14.86): “Will Sberbank Continue to Spur New Growth?”

Sberbank (SBRCY, $14.86): “Will Sberbank Continue to Spur New Growth?”
By: Joseph Vitrano, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


  • Sberbank Russia (SBRCY) Sberbank is the second largest bank in Russia, it accounts for one third of the Russian Banking system. They have more than 14,000 branches across Russia. The bank and subsidiaries are spread across Russia, the US, UK, and Central and Eastern Europe.
  • The bank services both retail and corporate clients through deposits, credit cards, commercial lending, wealth management, and insurance.
  • Sberbank is a leader in Russia, and is positioned to continue to grow digitally through retail as well as grow in wealth management in Russia.
  • Sberbank has met its targets in 2018 for their 2020 Strategic plan, and continue to stay on target. They continue to have cheaper multiples than comparables and an excellent return on equity of over 20%.
  • The central bank of Russia cut the key rate by 50bps to 6.5%, with worrisome factors like slowing inflation and lower GDP growth than expected. The price of Oil in the past 52 weeks ranged from $42 to $66.

Key points: 

Sberbank Russia was originally added to the AIM fund because it was cheap from Russia’s recession in 2015. It left the price of Sberbank at $6.6. The price has appreciated well past the price target of $7.82 in 2015. The original thesis of Connor Connelly AIM Alum is that Sberbank would be able to cut costs and improve efficiency like no other. He was right, and now Sberbank boasts ROE of 23%. They have been improving their mobile app and online banking to successfully acquire new customers and cut costs.

The largest issue facing all banks is worsening interest rates and tighter spreads. The Russian 10-year and 2-year spread tightened to 59 bps. However, this is still better than the US which has a spread of 23 bps. Their central bank just cut the key rate to 6.5% because of worries of deflation. Although GDP growth looks a bit weak, there is hope for better growth in Q3 according to their central bank. A worrisome long-term factor is Russia’s dependency on oil. Oil makes up 30% of their GDP, and a decline in the price of oil would have a major effect on their economy. Sberbank’s predictions indicate the price of crude staying around 55 dollars USD to make their goals. Crude is around $58 a barrel currently. Russia is hoping to lessen their dependency on oil exports and will have to in the long run as larger economies move to sustainable energy.

What has the stock done lately?

Sberbank’s price saw an increase on November 15, due to an acquisition of a 36% stake in MF Technologies. MF Technologies has a 58% stake in Mail.ru. Sberbank wanted to add to their technology portfolio and this is said to be beneficial for the both companies. Sberbank has fallen in price over the past month from $15.05 to 14.86. This fall was due to Gazprom taking the spot at the top of Russia’s Banking sector. Gazprom’s management decided to double their dividend payout, allowing their market cap to climb past Sberbank.

Source: FactSet
Past Year Performance

Sberbank has seen excellent growth over the past year. In fact, Russia as a whole has been an excellent area of growth. The MSCI Russia Index is up 20.8% over the past year. Sberbank is up 29.6% over the past year from $11.47 to $14.86. Sberbank is looking strong, outperforming Russia’s index, and looking to continue to grow.

My Takeaway

It is my recommendation that Sberbank continue to be held in the AIM portfolio. We will have to continue to monitor the economic conditions of Russia. Especially their key rate, yield spread, and oil prices. Although it is tough for the financial sector throughout the world it seems this Russian bank can spur new growth. While Gazprom took the lead as the largest bank, it is tied to the Oil industry. Sberbank being less focused on oil and more focused on technology will help it prevail in the long run.

Source: FactSet