#11 - JRL 7286
Russian oil firms seen good value despite YUKOS row
By Olena Horodetska
MOSCOW, Aug 12 (Reuters) - A row over oil major YUKOS may have unsettled investors but Russian oil firms are set to remain market favourites as they pump out increased profits while other investment avenues remain scarce, analysts said on Tuesday.
Worries triggered by a legal scandal surrounding YUKOS that have put Russia's big businesses at loggerheads with the Kremlin have subsided and confidence in the key oil and gas sector has revived, they said.
"Firstly, everything that is happening around YUKOS has more or less a local character. Secondly, it is temporary," said Lev Snykov, oil and gas analyst at NIKoil.
"The value behind the companies, including YUKOS, will be a more important factor in market estimates of the sector. Many oil shares are still interesting and rather undervalued."
Oil and gas firms have been staples of the Russian stock market, which soared over the last three month with the RTS index approaching five and half year highs in June before the YUKOS affair broke.
Analysts have lauded oil firms for good financial results, transparency, sound business plans and hefty dividends payouts. The sector accounts for about 60 percent of the Russian stock market and the energy industry is also the major export earner.
UNPREDICTABLE MARKET
But the unpredictable nature of the Russian stock market was highlighted last month by the arrest of a key YUKOS shareholder, Platon Lebedev, on charges of state property theft during a wave of privatisation in the 1990s.
The row triggered panic selling and pushed Russia's benchmark RTS index down. YUKOS has lost nearly 16 percent of its value since early July when Lebedev was detained.
Now the panic has subsided and oils have made up some of their earlier losses. The RTS was up by 7.95 points, closing at 481.03 on Monday compared with its Friday close of 473.08.
Analysts said there is still interest in the oil companies -- LUKOIL, Surgutneftgaz, Sibneft, Rosneft as well as YUKOS.
"I still think (oil firms) are cheap," said Prosperity Capital Management Chief Investment Officer Mattias Westman.
"They are good companies. They are growing fast. Whatever troubles there are, they will not materially affect the companies themselves," he said.
OILS REMAIN FAVORITE
NIKoil's Snykov said he liked LUKOIL as its shares had the biggest potential for further growth. He put a target price for LUKOIL at about $20. LUKOIL was down 0.16 percent, trading at $18.22 by 0836 GMT on Tuesday.
NIKoil's recommendation for YUKOS and Sibneft shares is 'hold', he said.
"Fundamentally, we recommend holding YUKOS shares. We think that shares are more or less adequately priced on the market. The same is true for Sibneft shares," Snykov said. "Though there are some short-term growth drivers."
YUKOS is due to acquire its smaller rival Sibneft by the end of 2003 to become Russia's largest and the world's fourth biggest private oil producer. YUKOS has said the deal will go ahead despite the legal row.
The two companies are also due to approve annual dividends exceeding $2.2 billion.
But analysts said the continued interest in oil stocks underscores the lack of alternative investments in Russia.
Investors are wary of national power utility UES, in the midst of a complex restructuring of the electricity industry.
They are also unwilling to take the plunge with the country's largely unreformed banking sector. Only one bank is currently listed, state controlled Sberbank.
"People are squeezed between oil companies, which are considered more advanced in terms of corporate management and other energy firms. Oil companies are likely to remain favorites," said Konstantin Shapsharov of Alfa-Bank sales and trading. "The market should be broader."
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