The 2014 Emerging EMEA Research Team: Financials, No. 3: Stephan Potgieter, Mikhail Shlemov & team

Stephan Potgieterand newcomerMikhail Shlemovpilot their UBS crew to the No. 3 position, returning the firm to this lineup after a two-year absence. The Moscow-based researchers win praise for their “grasp of drivers of stock valuation,” in the words of one portfolio manager, who adds that they “are almost always up to date with their views.” Financial firms in the region have faced difficulties this year, notes Shlemov, “with Russian banks hit by geopolitical tensions over Ukraine and Polish banks struggling to continue the run of last year, given postponement of policy rates increases.” Even so, going forward, two of the team’s favorite names in its eight-stock sector portfolio are the largest banks in Russia and Poland, Sberbank and PKO Bank Polski, respectively. In the nearer term, macro factors have already been priced in to the value of Sberbank’s stock, Shlemov explains, and geopolitical tensions are slowly subsiding — with “hopefully no new sanctions introduced — and that will drive reratings.” Over the longer run, the analysts forecast, the Russian bank can sustain its high-teens return on equity, even under an adverse macro scenario. “Trading at 20 percent discount to book value, it is one of most undervalued banks in the emerging markets,” Shlemov says. They have assigned Sberbank a target price of 130 rubles, which represents a 53.8 percent upside to the shares’ value in late May. In Poland, broadly, they deem bank stocks as attractive in the medium term but believe they will be locked in sideways trading over the next three to six months, until visibility of rate hikes drives investors’ reassessment of 2015 earnings growth estimates. PKO Bank Polski, notes Shlemov, offers “a combination of consolidation, high sensitivity to rates hikes and relative value versus its key peers.” Their target price for the stock is 53 złoty; it closed May at 40.60 złoty.