Shares in Sberbank have risen as much as 70 percent in the past three months as investors have turned to Russia's largest bank and its only tradable financial stock to make a bet on its growing, oil-driven economy.
But analysts say buyers may be overlooking Sberbank's (SBER.RTS) none-too-stellar fundamentals - rising costs, a deteriorating operating performance and, in an apparent conflict of interest, the fact that it is both owned and supervised by Russia's central bank.
“The rise in Sberbank shares only reflects diversification of foreigners' portfolios. It has nothing to do with its financial performance,” said Rosbank analyst Andrei Stoyanov.
Russia's economy grew by 7.3 percent last year and could repeat the performance this year as the world's number two oil exporter cashes in on crude prices of over $30 a barrel.
“People who buy Sberbank are banking on a rising rouble and a strong economy,” said Alex Kantarovich at Aton brokerage.
Oil stocks are no longer the obvious way to play this growth. Foreign investors have found themselves overexposed to oil shares, which account for 80 percent of Russia's market capitalisation but have been hurt by the arrest last year of former YUKOS (YUKO.RTS) CEO Mikhail Khodorkovsky, Stoyanov said.
Meanwhile, an influx of petrodollars has put upward pressure on the rouble and the weak dollar has encouraged Russians to convert their hard currency savings into rouble bank accounts.
That's good news for Sberbank, which controls three-fifths of Russia's retail deposits. It also stands to benefit from the increased credit demand that economic growth should generate.
Its shares have outperformed the broader market by 40 percent in the last three months.
But critics say Sberbank has been slow to turn itself from a lumbering Soviet monopoly into a dynamic, modern bank, coddled as it is by state guarantees its smaller rivals do not enjoy.
Deutsche Bank and its Russian partner UFG recently launched a Global Depositary Receipts programme for Sberbank shares, widening access to the stock for foreigners who must get central bank permission to buy shares in a Russian bank.
And, compared with its peers in formerly communist eastern Europe, Sberbank still looks cheap.
Alfa bank estimates that Poland's Pekao (BAPE.WA) trades at a price/book value ratio of 2.7 based on 2004 results, Czech Komercni (BKOMsp.PR) at 2.3 and Hungary's OTP at 2.4 - all higher than Sberbank at 1.5.
Sberbank looks safer than oil stocks while YUKOS's Khodorkovsky still awaits trial on charges of fraud and tax evasion and the government looks to raise the tax burden on oil firms, said Alfa Bank analyst Natalya Orlova.
“It insures against conflicts with the authorities,” she said. “People are also buying a company which is not fraught with the risk of possible higher taxation.”
But Sberbank's net interest margin, a measure of underlying profitability, fell to six percent in 2003 from 8.2 percent in 2002 in rouble terms. At the same time, costs soared 30 percent.
The bank, which used to show better profit each quarter than the same period previous year, showed a slowdown in the first nine months of 2003. But it ended the year with higher profits.
CEO and Chairman Andrei Kazmin said last week that revaluing Sberbank's securities portfolio accounted for 20 percent of the success.