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Investment Outlook

Third Quarter 2014 Update

July 2014

VTB Capital IM Equity and FI Research Team

For Professional Investors Only

Investment summary

Macro

Fixed income

Equities

FX

Appendix

Contacts

Contents

Growth rates for the global economy are still below their potential level. The economic cycle in developed markets

still looks better than in emerging markets, but in 1H14 there were the first signs of a turnaround. The economic surprise

index for EMs has significantly improved relative to DMs. The differences in economic growth and inflation between EMs

and DMs are no longer contracting.

G-4 central banks maintain their economic stimulus policies. The first hike in interest rates is expected no earlier than

in 2015. The US Fed is gradually tapering its quantitative easing program and will probably raise interest rates in 2015.

Geopolitical concerns over the situation in Ukraine led to a significant discount in Russian assets, which peaked

in March. Over the past few months the geopolitical discount has closed in equities and most debt market segments with

the exception of ruble government bonds. Money market rates remain practically unchanged from March, which is a result

of the CBR’s monetary policy.

Russian economy is through the bottom and we are seeing signs of a turnaround. As of 1Q14 there was a decline

in investments to primary capital, an increase in inflation and a slowdown in real income. Furthermore, there has been

indications of a turnaround – the slowdown in real GDP growth has halted, industrial output has increased and retail

turnover growth has accelerated. On the whole we remain rather positive on the Russian economy in the short term, which

is due to a cyclical improvement in developed economies.

In our low-inflation scenario the total return on investment for government and corporate ruble bonds exceeds

9% in ruble terms.

Russian Eurobonds could see a total return on investment of 2-8% in USD terms.

The top-down scenario-weighted upside for the RTS index is around 40% according to our estimates. Dividend

payments and share buybacks continue to be the main support factors for equities.

Investment Summary

Source: VTB Capital Investment Management

Note: all conclusions and estimates are based on a situation as of 14.07.2014

Source: MOEX, Cbonds, CBR, Bloomberg, VTBC Investment Management

What is the current discount for Russian assets?

The geopolitical situation in

Ukraine led to a substantial

discount emerging across all

Russian asset classes, which

generally bottomed out as the

crisis reached its peak in

March.

The biggest effects were seen

in stocks and the ruble money

market, while the least affected

were some ruble bond

segments.

Over the past two months,

Russian assets have seen a

substantial rally as it started to

look like the worst of the crisis

had passed.

The geopolitical discount has

closed in equities and fixed

income for the most part, with

some upside remaining in RUB

sovereign bonds. Money

market rates have yet to

recover, but this is a direct

result of the CBR’s tight

monetary policy.

70,0

75,0

80,0

85,0

90,0

95,0

100,0

105,0

110,0

115,0

70,0

75,0

80,0

85,0

90,0

95,0

100,0

105,0

110,0

115,0

Hig

h /

low

index

betw

een N

ov'

13-M

ar'14

(Hig

h =

100)

Russia geopolit ical discount on Ukr aine and curr ent valuat ion

High Low Close, end of Mar'14 Close, mid July'14

Source: EPFR, VTBC Investment Management

Investors React with Inflows

Net inflows to all categories of

Russian equity funds totaled

$772 mln for the period from

the beginning of March to the

start of July

The biggest inflow during this

period was seen in Russia-

focused ETF funds ($786 mln)

and GEM funds ($688 mln).

Thus, investors reacted

positively to the de-escalation

around Ukraine and moderate

sanctions imposed on Russia

by the West.

Also it seems that foreign

investors did not expect any

serious sanctions against

Russia.

(483)

(319)

(37)

137

688

772

786

(800) (300) 200 700 1 200

Actively managed

EM Europe, Middle East &

Africa

BRIC

Others

Global Emerging Markets

Total flows

ETFs

Fund f l ows by t ype of invest or s bet ween

ear l y Mar '14 - ear l y Jul '14

(800)

(600)

(400)

(200)

-

200

400

600

Ru

ssia

Inflow

/(O

utflo

w) U

SD

m

Flows int o Russian equit ies by fund

cat egor y, $ mn; weekly dat a

Others BRIC

EM Europe, Middle East & Africa Global Emerging Markets

ETFs Actively Managed

Global economic growth

remains below its potential

level.

The economic cycle in

developed countries

continues to look better than

that in emerging markets, but

in 1H14 there were the first

signs of a turnaround.

The economic surprise index

for emerging markets has

significantly improved

recently relative to developed

markets.

Revisions of GDP forecasts

in developed countries have

become negative, which does

not bode well for global

economic forecasts this year.

The difference between

economic growth rates and

inflation between developed

and emerging markets has

stopped contracting.

Global economy – developing versus developed economies

0,00

1,00

2,00

3,00

4,00

5,00

6,00

DM EM Global

YoY, %

GDP gr owth should be back on t r end in DM, EMs should

fol l ow

LT GDP growth Real GDP growth, conensus Bloomberg '14

-0,40

-0,30

-0,20

-0,10

0,00

0,10

0,20

DM EM Global

pp

The weakness of the global economy is st il l

concent r ated in EMs, wher e GDP gr owth momentum is

negat ive and CPI gr owth momentum is posit ive

Real GDP revision momentum (3 months), consensus Bloomberg '14

CPI revision momentum (3 months), consensus Bloomberg '14

-60,00

-40,00

-20,00

0,00

20,00

40,00

60,00

However economic sur pr ise index has impr oved in

EMs lately

DM EM

2,00

2,40

2,80

3,20

3,60

4,00

How is sustainabledecoupl ing between EM and DM?

EM-DM Gap of GDP growth forecast, pp 2014

Source: IMF, Bloomberg, VTB Capital IM Research estimates

The Russian economy has

seen a slowdown in economic

activity over the past few

years.

Actual output has fallen below

potential output, which

confirms a cyclical slowdown

in the Russian economy.

In addition to this, key macro

economic indicators, including

real GDP, remain in positive

territory.

Statistically, this indicates that

the Russian economy is not in

a recession at this time.

Only if the slowdown in

economic activity continues

for another few quarters will

this indicate a recession.

Sources: Rosstat, NBER and VTBC IM Research

Russian economy – how close to a recession?

* Hodrick-Prescott filter used for assessment

-10,0%

-7,5%

-5,0%

-2,5%

0,0%

2,5%

5,0%

7,5%

10,0%

Real GDP is st il l gr owing, but

slowdown is obvious

Real GDP growth YoY, s.a.

-7,5%

-5,0%

-2,5%

0,0%

2,5%

5,0%

7,5%

Output gap is going t o negative

zone, but st il l no contraction

Cyclical component by Hodrick-Prescott

fil ter, % of GDP

During 1Q14 the growth rate

for real GDP slowed to 0.9%

YoY.

The Bloomberg consensus for

2014 real GDP fell

substantially to 0.65% YoY.

Our scenario-weighted

forecast suggests real GDP

will grow 1.9% YoY.

Our inflation forecast has

increased together with the

consensus to 6.6% YoY at

end-2014.

We continue to be more

optimistic on the outlook for

the Russian economy in the

short term, which is in large

part due to a cyclical

improvement in developed

markets.

Source: Rosstat, Bloomberg, VTBC IM Research estimates

Inflation forecasts are rising, while GDP forecasts decline

0,00

1,00

2,00

3,00

4,00

Real GDP gr owth -consensus vs VTBC

IM

Bloomberg consensus forecast, 2014

VTBC IM projections, weighted probabil ity scenario

4,50

5,00

5,50

6,00

6,50

7,00

CPI pr oject ions -consensus vs VTBC IM

Bloomberg consensus forecast, 2014

VTBC IM projections, weighted probabil ity scenario

The Russian economy has

apparently bottomed out

according to key macro

indicators.

1Q14 saw a decline in capital

investments, a growth in

inflation, and a slowdown in

real income growth.

Furthermore, in 1Q14 the

slowdown in real GDP growth

stopped, industrial output

increased and the growth in

retail turnover stabilized.

The slowdown in inflation will

be supported by a decline in

monetary supply and stronger

ruble in 2Q14.

The cyclical improvement in

developed economies could

support oil prices and the

Russian economy in 2014.

Russian Economic Forecasts for 2014

Rus s ian Ec onom y – Es tim ates and Forec as ts

In dic ato rs 2013 1Q14

fact fact Recessionary Low InflationaryInflationary

Upturn

Real GDP, % 1,3% 0,9% 1,1% 1,9% 2,5%

Industrial Output, % 0,3% 1,1% 1,0% 1,7% 2,1%

Fixed Asset Investments (FAI), % -0,3% -4,9% -0,7% 0,1% 0,6%

Real Retail Sales, % 3,9% 3,5% 0,8% 3,7% 5,8%

Real Wages per capital, % 5,2% 3,9% 1,9% 5,0% 6,2%

CPI, % average per year 6,8% 6,4% 6,1% 6,3% 6,8%

CPI, % December YoY 6,5% 6,9% 5,7% 6,3% 7,8%

Trade Balance, $ bln 180 51 145 174 189

Federal Budget Revenues, $ bln 13 020 3 521 12 238 13 589 14 320

Federal Budget General Deficit(-)/Surplus(+), %-0,5% 0,7% -2,4% -0,5% 0,5%

M oney Supply (M 2), % YoY 14,6% 8,5% 7,6% 14,0% 16,5%

Gross International Reserves (GIR), $ bln 510 486 434 498 529

Crude Oil Price, average, $/bbl 108 108 85 105 120

Scenario Probability, % 10% 65% 25%

2014 f o re c ast

* Scenarios presented on the basis of the global economic cycle

Source: Rosstat, CBR, Finance Ministry, VTB Capital IM Research estimates

In May Russia signed a 30-

year gas supply agreement

with China for 38 bcm p.a.

and worth $400 bln.

As part of the agreement

the “Power of Siberia” gas

pipeline will be built, as well

as several other projects,

with total investment costs

estimated at $58 bln.

The direct contribution from

investments in the “Power

of Siberia” to real GDP

growth is rather substantial,

estimated to average 0.3

ppt over the next five years.

Together with the cyclical

improvement in developed

economies, this project

could support GDP growth

over the next few years.

Source: Gazprom, CNPC, media, VTBC IM Research

Will the “Power of Siberia” boost Russian GDP?

Investment

projects under

the contract

Project Investment, USD

bln

Develop Chayandinsk deposit 10,00

Develop Kovyktinsk deposit 12,50

Chayanda-Blagoveshensk

pipeline 15,00

Kovykta-Chayanda pipeline 5,08

Belogorsk gas processing

plant 15,00

Total 57,58

Investment Program for “Power of Siberia”

0,0

10,0

20,0

30,0

40,0

Fir st Del iver ies Pl anned for 2019

Gas volumes delivered under project, bcm

0

3 000

6 000

9 000

12 000

Investments in

Power of

Siberia, $ mln

Main Investments Occur Over Next 5 Year s

0,00%

0,10%

0,20%

0,30%

0,40%

0,50%

2014E 2015E 2016E 2017E 2018E

Signif icant Contr ibut ion to GDP , PPT

Source: Cbonds, Moscow Exchange, VTBC IM Research estimates

Ruble bonds – expected returns

Ruble bonds could produce a

total return of 5-10% over the

next 12 months in ruble terms.

We are expecting that YTMs

will moderately decrease in

the low inflationary scenario.

Other scenarios assume

rising YTM for OFZs because

inflation is rising and the CBR

could refrain from monetary

policy easing at least before

the end of this year.

Credit spreads on IG

corporate ruble bonds are

very narrow at present and do

not look attractive versus

OFZs.

Ruble BondsCurrent

Value

Recessionary

Scenario

Low

Inflationary

Scenario

Inflationary

Upturn

Scenario

Corporate Bonds Z-spread to OFZ, bps 148 365 160 200

Weighted Average Duration, years

OFZ (RGBI Index) 5,5 5,5 5,5 5,5

Corporate Bonds (IFX-Cbonds Index) 1,3 1,3 1,3 1,3

Target Yield-to-Maturity RUB terms, %

OFZ (RGBI Index) 8,4% 9,8% 8,2% 8,7%

Corporate Bonds (IFX-Cbonds Index) 9,5% 13,6% 9,3% 10,2%

Expected Total Return RUB terms, % per annum

OFZs (RGBI Index) 2,2% 9,6% 7,4%

Corporate Bonds (IFX-Cbonds Index) 8,2% 9,5% 9,2%

Average Expected Return RUB terms, % per annum 5,2% 9,6% 8,3%

Weighted average of 3 scenarios 0,0% 8,8% 0,0%

Scenario probability, % 10% 65% 25%

Since May ruble bonds

have partly recovered to the

levels seen before the

Ukraine crisis. OFZs with 5-

7 years duration have

recovered the most since

that time.

YTMs of corporate ruble

bonds were mostly flat

because many issues are

concentrated within a two-

year duration.

Credit spreads of 1st and 2nd

tier corporate bonds are

trading near historical lows.

At the same time the YTM

of the most oversold short-

term corporate bonds went

down and the slope of the

yield curve has flattened.

Ruble bonds – key trends

5,50

6,50

7,50

8,50

9,50

10,50

11,50

0 1 2 3 4 5 6 7 8 9 10 11

Yiel

d to

Mat

uri

ty, %

Duration, Years

OFZ Yield Curve

Corporate Bonds Yield Curve

Fir st-t ier Government and Cor porate Ruble Bonds

0

100

200

300

400Cor por ate Ruble bonds Z-SPREAD, basis points

Corporate Ruble Bonds

Source: Bloomberg, Cbonds, MOEX, VTB Capital IM Research estimates

4

6

8

10

12

Russian debt YTMs, %

OFZ Corporate Ruble Bonds

-150

-100

-50

0

50

100

150

200

250

4,0

5,0

6,0

7,0

8,0

9,0

10,0

1Y 2Y 3Y 5Y 7Y 10Y 15Y

Ch

an

ge in

yield

, bp

s

Yie

ld to

matu

rity

, %Duration, years

Change in OFZ Yiel ds Over Past 12 months

Change in Yield to Maturity over past 3 months

OFZ yield curve as of 23.06.2014



Based on our factor model, in

the base scenario (low-inflation)

we see a fair level for the 10-

year real ruble rate at 146 bps,

which suggests a nominal rate

of 8%.

Alternatively, global investors

could value the 10-year ruble

nominal rate in terms of {Yield

on 10Y UST + Russian CDS +

premium for forex risk}.

The dynamics of this expression

starting from end-2011 well

resembles 10-year OFZ yields.

Based on our forecasts for the

UST curve and Russia CDS, we

see a fair level for the 10-year

nominal ruble rate at 9% in our

base case scenario.

Weighted for both approaches,

the nominal rate for the base

case is 8.5%=8*50%+9*50%.

Outlook for long-term RUB interest rates

Source: Bloomberg, VTB Capital IM Research estimates

0 100 200 300

Aver age hist or ical indicator for

r eal r at e (weight 25%)

Real GDP gr owth r at e (weight

25%)

Dynamics of RU CDS5-10Y (weight

25%)

Aver age l evel of l ocal cur ves

steepnesses for EMs (weight25%)

Real inter est r at e Fair Val ue

* Real Rat e FV abs ed o n a par t icu l ar f act or

Fac

to

rs

Fair Level for 10Y RUB Real Rates

-200 0 200 400

Russia

Chil e

Tur key

Pol and

Sout h Kor ea

Czech

Br azil

EM Average (incl . US for Ref.)

Hungar y

Sout h Afr ica

US

Phil ippines

Mexico

Indonesia

EM Curve Steepness, bps

(10Y Local Rate - 3M Rate*)

* Based on NDF3M; for Hungary 3M interbank deposit rate is used

-400

-200

0

200

400

600

800

1000

EM 10Y Real Yield, bps* (2005 – present, excluding 2H08 – 2009)

Current Average* Calculated as {10Y Local Rate - Local CPI y-0-y}

6,5%7,0%7,5%8,0%8,5%9,0%9,5%

10,0%10,5%11,0%11,5%

10Y OFZ Nominal Yield and Replication {UST 10Y yield + ru cds 10Y + fx risk premium}

{ust 10y yield + ru cds 10Y + fx risk premium}10Y nominal OFZ yield

Average spread is about 100-150 b.p.

Russian Eurobonds – expected returns

YTM of 10Y UST is holding

at 2.6% in spite of the Fed’s

QE3 exit and market

expectations of monetary

policy tightening in the future.

Depending on the scenario

Russian Eurobonds could

deliver a total return of 2-8%

over the next 12 months in

USD terms.

The highest returns could be

sought in non-investment

grade corporate Eurobonds

in the low inflationary

scenario which looks

naturally better for credit.

Source: Merrill Lynch indices, Bloomberg, VTB Capital IM Research estimates

Russian EurobondsCurrent

Value

Recessionary

Scenario

Low

Inflationary

Scenario

Inflationary

Upturn Scenario

Govt OAS Spreads, bps

Sovereign Eurobonds (GDRU Index) 210 350 150 180

Investment Grade Corporate (ERUI Index) 295 400 200 225

High Yield Corporate (ERUH Index) 532 750 350 400

Weighted Average Duration, years

Sovereign Eurobonds (GDRU Index) 6,0 6,0 6,0 6,0

Investment Grade Corporate (ERUI Index) 4,5 4,5 4,5 4,5

High Yield Corporate (ERUH Index) 3,8 3,8 3,8 3,8

Target Yield-to-Maturity, %

10-year US Treasury Bonds 2,6% 2,0% 2,9% 3,9%

Sovereign Eurobonds (GDRU Index) 4,2% 5,0% 3,9% 5,2%

Investment Grade Corporate (ERUI Index) 4,3% 4,7% 3,6% 4,9%

High Yield Corporate (ERUH Index) 6,8% 8,3% 5,2% 6,7%

Expected Total Return USD terms, % per annum

Sovereign Eurobonds (GDRU Index) 0,3% 6,0% -0,6%

Investment Grade Corporate (ERUI Index) 2,8% 6,7% 2,4%

High Yield Corporate (ERUH Index) 2,5% 11,1% 7,0%

Average expected return USD terms,% per annum 1,9% 7,9% 2,9%

Weighted average of the 3 scenarios 6,1%

Scenario probability, % 10% 65% 25%

Over the past three months

the Russian Eurobond

market has fully recovered to

levels seen before the

Ukraine crisis.

Sovereign Eurobonds with

10-15 year maturities have

recovered the most since

that time.

Relative to UST, spreads

have narrowed the most in

non-investment grade

corporate Eurobonds. These

changes reversed the

situation seen in 1Q14.

The compression of credit

spreads in high-yield

corporate Eurobonds may

continue and they remain

attractive at current levels.

Russian Eurobonds – key trends

Source: Merrill Lynch indices, Bloomberg, MOEX, VTB Capital IM Research estimates

VTB 22 Perp T1; 9,05

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

8,00

9,00

10,00

0 2 4 6 8 10 12 14 16

Yiel

d to

Ma

turi

ty, %

Duration, Years

Russian Eurobonds: sovereign/ corpor ate issues above BBB-

Sovereign Eurobonds Yield Curve

Corporate Eurobonds Yield Curve

0

200

400

600

800

1000Russian Eurobond Govt OAS spr eads, bps

Sovereign Eurobonds High Grade Corporate Eurobonds

High Yield Corporate Eurobonds

0

2

4

6

8

10

12Russian Eurobond YTMs, %

Sovereign Eurobonds High Grade Corporate Eurobonds

High Yield Corporate Eurobonds

-150

-100

-50

0

50

100

150

0

1

2

3

4

5

6

7

1Y 5Y 8Y 10Y 15Y 30YYTM

, %

Duration, years

12M Change in Sovereign Eurobond Yields

Change in Yield to Maturity over past 3 months

Yield Curve as of 23.06.2014



According to our base (low-inflation) scenario, the UST curve will probably shift upward by +50 /+60 b.p. (2-10y part of the curve) in the following 12 months. We think that the Russian sovereign Eurobond curve has already priced in such a move.

We think that the situation is still attractive in terms of exploiting the roll-down effect remaining in Russian sovereign Eurobonds with a 3-4 year duration (around 95 bps per year), as well as 7-8 year papers (around 96 bps per year).

The main risk of a roll-down strategy in Eurobonds is a long-term increase in yields on USTs with a similar duration.

* Roll-down effect is represented by price appreciation towards the maturity date as the bond moves to the left on the yield curve


Russian sovereign Eurobonds – tactical ideas

0

10

20

30

40

50

60

70

3M 2Y 3Y 5Y 7Y 10Y

UST Curve Yields' Likely Changes Under Base (Low-Inflation) Scenario

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10-15Y

%

Russia Sovereign Eurobonds Curve (USD) and Its Replication by means of {UST + RU CDS}

Curve {UST + RU CDS} as of 07.04.2014

Russia Sovereign Eurobonds Curve, USD (07.04.2014)

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

3M 2Y 3Y 5Y 7Y 10Y%

C urrent and Implied (according to scenarios) Forms of UST Curve

Base (Low-Inflation) Scenario

Current as of 07.04.2014

Recession Scenario

Inflation Scenario

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

3M 2Y 3Y 5Y 7Y 10Y

%

Current and Implied Slope of UST Curve

Base (Low-Inflation) Scenario Current as of 07.04.2014

Recession Scenario Inflation Scenario

Russian stocks: a top-down view


Ongoing geopolitical

tensions over the situation in

Ukraine command a higher

risk premium when

assessing the value of

Russian assets, which

translates to lower multiples.

With EPS of the RTS index

at cyclically low base, there

is a room for 10% p. a.

growth over the next three

years, if oil prices hold

stable.

The past three years saw

P/E multiples of 4.5-6.2x. We

do not believe this is a fair

range given current low

interest rates.

The top-down scenario-

weighted upside for the RTS

index is around 40%

according to our estimates.

RTS Index Top-Down Scenarios (Next 12 months)

Recessionary

Scenario

Low Inflation

Scenario

Inflationary Upturn

Scenario

EPS 2013, $ 250,0 250,0 250,0 % change 2014 vs 2013 -22% 1% 11%EPS 2014E, $ 196,0 252,4 276,9Russian Sovereign Risk, % 5,0% 3,9% 5,2%Russian ERP, % 25,0% 11,0% 14,0%Terminal earnings growth, % 3,0% 3,0% 3,0%Current RTS Index Value 1403 1403 1403Target P/E multiple 3,7 8,4 6,2RTS Index Fair Value 726 2127 1713Upside/Downside, % -48,2% 51,6% 22,1%Dividend Yield, % 3,5% 4,5% 4,9%Total Return, % -44,7% 56,1% 27,0%Probability-weighted return, % 38,8%

Estimated probability, % 10% 65% 25%

50

110

170

230

290

350

2009 2010 2011 2012 2013 2014

RTS Index EPS Scenarios

2006-2010 Forward 12 months Low Inflation Scenario Inflationary Upturn Scenario

Recessionary Scenario Long-term EPS trend

0

3

6

9

12

15

07 08 09 10 11 12 13 14

2006-2010 Forward 12 months Low Inflation Scenario

Inflationary Upturn Scenario Recessionary Scenario

RTS Index Target P/ E Scenar ios

50

110

170

230

290

350

2009 2010 2011 2012 2013 2014

RTS Index EPS Scenarios

2006-2010 Forward 12 months Low Inflation Scenario Inflationary Upturn Scenario

Recessionary Scenario Long-term EPS trend

EPS scenarios for 2014

We have raised our end-2014 scenario weighted EPS forecast for the RTS index by 3% from our previous quarterly review due to the recent rise in oil prices.

Consensus earnings estimates for metals & mining and utility names, as well as Gazprom, have significantly declined over the past two years, which creates the opportunity for positive surprises in the future.

The main drivers for the growth in the EPS for the RTS index for 2014 versus 2013 are oil & gas and metals & mining sectors.

By our estimates, the aggregated RTS Index ROE for 2014 is 12.9% in the inflationary scenario, 11.8% in the low inflationary scenario and 9.1% in the recessionary scenario.

-3%

+15%

-26%


12,7%11,8%

12,9%13,7%

22,2%

16,9%

12,6%10,9%

15,8%

19,1%

14,3%

12,5%11,1%11,8%

9,1%

12,9%

0%

5%

10%

15%

20%

25%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F

RO

E

RTS Index ROE

Re po rted 2002-2013(F) Conse nsus Foreca st Low Inflation Sce nario Re cessio na ry Sce nario Inflationa ry Upturn Sce nario

3,3

5,3

3,8

1,1

0,6

0,4

-3,6

-0,1

-4,0 -2,0 0,0 2,0 4,0 6,0

RTS Index total

Oil

Metals & Mining

Consumer Staples

Consumer Cyclicals

Electric Util ities

Banking

Gas

Others

Sector cont ribution to RTS Index EPS change in 2014 vs

2013 (pr obabil ity-weighted for 3 scenar ios), pp

-7,6%

-23,6%

-51,4%

-11,8%

-13,6%

10,5%

-20,6%

19%

-11%

-20%

-2%

121%

16%

3%

26%

-6%

-7%

2%

288%

22%

14%

-100% 0% 100% 200% 300% 400%

Oil

Gas

Banking

Telecoms

Metals & Mining

Electric Util ities

Total - RTS Index

RTS Index EPS Scenar ios For 2014 By Sector

Recession

Low Inflation

Inflation

2015-2017 EPS CAGR of 10% looks realistic

Oil

30%

Gas

38%

Banks

18%

Metals &

Mining

2%

Telecoms

7%

Electric utilities

2%

Other

3%

RTS Index EPS by sector (2013E)

-0,8%

3,8%

4,9%

5,3%

9,1%

10,2%

10,7%

15,4%

20,7%

23,1%

10,2%

-10% -5% 0% 5% 10% 15% 20% 25%

Base Metal s

Mobil es

St eel

Oil

Discos

Gol d

Gazprom

Ret ail

Banking

Gencos

Tot al - RTS Index

EPS 3Y CAGR t o be back on t rend LT EPS Trend growt h, % pa 3Y EPS CAGR

Sector Contr ibut ion to Next 3Y EPS Gr owth

-82,5%

-55,0%

-33,5%

-32,4%

-30,0%

-26,7%

-26,7%

-6,0%

3,6%

28,4%

137,4%

-120% -70% -20% 30% 80% 130% 180%

Steel

Base Metals

Fertilizers

Discos

Gencos

Gazprom

Fixed-Line Telcos

Mobiles

Oil

Banking

Retail

Consensus EPS Revisions 2011-2013 (peak to t r ough), %

Considering the low base

effect for the financial

results of Russian

companies, a 10%

compound average

growth rate for 2014-16

looks very realistic.

Around 40% of the EPS

for the RTS index comes

from sectors with limited

potential for long-term

growth (oil and telecoms).

The other 60% is made

up of sectors with

cyclically low profitability

(gas and metals) or which

have potential for long-

term growth (banks and

retail).

Source: Moscow Exchange, Bloomberg, VTB Capital IM Research estimates

0

200

400

600

800

1 000

1 200

1 400

2007 2008 2009 2010 2011 2012 2013 2014

RTS sector EPS trends (2007 = 100)

Oil & gas M&Mining Financials Telecoms

Consumer Industrial Utilities

0%

8%

15%

23%

30%

38%

45%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Russian Equity Risk Premium (E/ P-BY+g), %

At what P/E multiple should Russian stocks trade?

Our low-inflation scenario

implies a recovery in the

Russian market’s P/E to 8.4x

based on a fair premium for

the risk of investing in

Russian equities of 11% and

a long-term growth rate of 3%

per annum.

The inflation scenario

suggests an aggregate P/E

multiple of 6.2x due to higher

interest rates and a risk

premium compared to the

low-inflation scenario.

The recession scenario

implies a P/E multiple of 3.7x.

We expect Russia’s discount

to EMs on P/E to narrow from

the current 60% to 20-25%,

which is justified, given the

sector structure of the

Russian market.

Recessionary Scenario = 25%

Low Inflationary Scenario= 11%

Inflationary Scenario = 14%


0

3

6

9

12

15

07 08 09 10 11 12 13 14

2006-2010 Forward 12 months Low Inflation Scenario Inflationary Upturn Scenario Recessionary Scenario

RTS Index Target P/ E Scenar ios

-80,0%

-60,0%

-40,0%

-20,0%

0,0%

20,0%

40,0%

60,0%

80,0%

100,0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

P/ E next 12m Pr emium (+) / Discount (-) :

MSCI Russia vs MSCI EM

Premium (+) / Discount (-) MSCI Russia vs MSCI EM

Average Discount (2005−11)0,4%

2,6%4,4%

10,4%8,9%

16,6%

7,6% 7,7%

41,4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

< 3 3 - 4 4 - 5 5 - 6 6 - 7 7 - 8 8 - 9 9 - 10 10+%

of

ob

serv

ati

on

s

Starting P/ E valuation

% of observations falling within each valuation band(based on data since 2003)

Russia

Brazil

China

IndiaIndonesia

MalaysiaPhilippines

Thailand

South Africa

Turkey

Egypt

Mexico

Chile

0,0

5,0

10,0

15,0

20,0

25,0

0% 5% 10% 15% 20%

P/E

LT EPS Growth, %

Russia Should Tr ade at 10x-12x for next 12m EPS

Given The Cur r ent EM Val uat ions

Russia stands out among EMs with its exceptionally low valuation

Source: Bloomberg, VTBC IM Research

Based on P/E multiples and

long-term growth (PEG)

Russia has the lowest

valuations among EM

equities, even accounting for

the recent slowdown in

economic growth.

With a return on equity of

11%, Russia’s P/BV ratio

should be much higher than

the current 0.6x.

Russia

Brazil

China

India

Indonesia

Malaysia

Philippines

Thailand

South Africa

TurkeyPoland

Egypt

Mexico

ChiliColumbia

Peru

Argentina

0

0,5

1

1,5

2

2,5

3

3,5

7% 12% 17% 22%

P/B

V r

atio

Return on equity (ROE) %

With ROE at 11%, Russia's P/ BV should be Higher

4,5%4,1%

3,9%3,5%

3,4%3,1%3,1%3,1%

3,0%3,0%

2,8%2,6%

2,5%2,0%

1,7%1,6%1,6%

1,5%1,2%

0,0% 1,0% 2,0% 3,0% 4,0% 5,0%

RussiaPolandBrazilChina

ThailandTurkey

S. AfricaColumbia

TaiwanMalaysia

EgyptIndonesia

ChilePhilippines

PeruIndia

MexicoArgentina

S. Korea

Dividend yield as of end-2013, %

Russia has one of the highest dividend yiel ds

among EMs

0,5

0,7

0,7

0,9

1,0

1,2

1,3

1,5

1,6

1,8

2,0

2,4

2,7

0,0 0,5 1,0 1,5 2,0 2,5 3,0

Russia

China

Egypt

Brazil

India

Turkey

Indonesia

S. Africa

Chile

Thailand

Mexico

Philippines

Malaysia

PEG

Russia has the most at t r act ive r at io of P/ E to

l ong ter m gr owth

Russia -

2013

Russia -

2006

Russia -

2015F

0%

20%

40%

60%

80%

100%

120%

5% 10% 15% 20% 25% 30%

Div

idend Pa

yout, %

ROE, %

As ROE declines, incr easing dividend payouts ar e

just if ied

Dividends to help unlock fundamental upside

Compared with other

emerging markets, Russia

has the lowest dividend

payout ratio.

In the past Russian

companies generated high

returns on equity, justifying

the reinvestment of income.

As ROEs decline, a rise in

dividend payouts is a

natural development.

The dividend yield for the

RTS index could reach 5%

based on 2013 financials,

with a payout ratio of 25%.

Over the next 3-5 years,

Russian companies are

likely to raise dividend

payout ratios to 35-50%.

Source: Bloomberg, MOEX, VTB Capital IM Research estimates

30%

23%

20%20%

18%17%

21%

12%

18%

13%

0%

5%

10%

15%

20%

25%

30%

35%

2015F2014F2013F2012201120102009200820072006

Div

ide

nd

Pa

you

t, %

of

ne

t in

co

me

Long-term t rend of increasing dividend payouts, with pl enty

of r oom t o continue

0%

1%

2%

3%

4%

5%

6%

2009 2010 2011 2012 2013 2014

Div

idend Yie

ld, %

Russia now of fer s a dividend yiel d pr emium

to emer ging mar kets

Russia Emerging Markets (MSCI EM)

16%

19%

19%

21%

24%

30%

32%

35%

44%

48%

49%

65%

67%

67%

88%

98%

0% 20% 40% 60% 80% 100% 120%

S. Korea

Russia

Turkey

Argentina

India

China

ThailandPhil ippines

IndonesiaMalaysia

Brazil

Taiwan

Columbia

S. Africa

Peru

Egypt

At the same t ime Russia has the lowest dividend

payout r at io (% of 2013E net pr ofit ) among emer ging

mar kets

In 2014 the CBR has

continued to take steps toward

free-floating the ruble; it has

widened the non-intervention

range (neutral range) from 3 to

5 rubles and reduced the

volume of forex interventions in

the internal interval of the

operation corridor by $200 mn.

In March the CBR was forced

to temporarily increase

interventions from $350 mn to

$1.5 bln, due to a sharp

increase in ruble volatility and

geopolitical risks. Currently

interventions are $1 bn and

could be gradually reduced.

During 2H14 the CBR plans to

continue efforts to reduce its

presence on the local forex

market and free float the ruble

in 2015.

CBR Monetary Policy – Transition Period

Period of

time

CBR action CBR dual-

currency

operational

bands, rub.

The volume

of cumulative

interventions,

USD mn.

The volume

of target

(planned)

interventions,

USD mn. per

day

Mar 2011 Expanding dual-currency bands to 5 rub. Lowering the volume of

cumulative interventions to USD 600 mn. 32.35-37.35 600

120 Dec 2011

Expanding dual-currency bands to 6 rub. Lowering the volume of


Jul 2012 Expanding dual-currency bands to 7 rub. Lowering the volume of


Sept 2013 Lowering the volume of cumulative interventions to USD 400 mn. 32.25-39.25 400

Oct 2013

Finance Ministry begins FX purchases on the local market for the Reserve

Fund. Lowering the volume of target interventions to USD 60 mn. Widening

of the neutral range from 1 RUB to 3.1 RUB

32.35-39.35 400 60

Dec 2013 Lowering the volume of cumulative interventions to USD 350 mn. 32.85-39.85 350

Jan 2014 Lowering the volume of target interventions to USD 0 mn. 33.65-40.65 350

0

Mar 2014 Increase in interventions from $350 mn to $1.5 bn as a temporary to

combat increased ruble volatility 35.75-42.75 1500

May 2014 Reduce volume of interventions internal interval of operation corridor by

$100 mn 36.40-43.40 1500

June 2014

Decline in volume of forex interventions in the internal interval operation

corridor of $100 mn. This led to a widening of the neutral range from 3.1

RUB to 5.1 RUB. Decline in cumulative forex interventions from $1.5 bn to

$1 bn.

36.40-43.40 1000

Evolution of CBR Monetary Policy – Recent Changes

Target (planned) FX interventions are made taking into account the assessment of the county’s external trade balance and price dynamics for energy

carriers on global markets, that is – depending on external market conditions.

Cumulative FX interventions, executed by the CBR in addition to target (planned) interventions, are conducted in order to smooth fluctuations in the ruble

exchange rate, not conditioned on fundamental economic factors.

Neutral range – Range within the bi-currency corridor where the CBR does not conduct forex interventions

Source: CBR, Bloomberg, VTB Capital IM Research estimates

Source: CBR. Bloomberg, VTB Capital IM Research estimates

In 2Q14 the CBR raised key

interest rates by 50 bps. This

was the second hike in

interest rates this year,

bringing the total increase to

200 bps.

The current rate of inflation is

7.8% YoY, which is above the

level targeted by the CBR for

year-end (6%).

As part of its inflation

targeting the CBR does not

have the ability to switch to a

rapid softening of its

monetary policy, despite a

general slowdown in

economic activity.

We believe the CBR will likely

refrain from reducing interest

rates before the end of the

year due to inflation risks.

CBR tightens its monetary policy

1,5

3,0

4,5

6,0

7,5

9,0

Jan-1

1

Apr-

11

Jul-11

Oct

-11

Jan-1

2

Apr-

12

Jul-12

Oct

-12

Jan-1

3

Apr-

13

Jul-13

Oct

-13

Jan-1

4

Apr-

14

M ain Interest Rates - CBR moved t o a drastic t ight ening of monetar y pol icy in t he face of r ising inf l ation and capital fl ight outside Russia

CBR Fixed REPO Rate Overnight, %

CBR Fixed Deposit Rate Overnight, %

MosPRIME Rate Overnight, %

CBR Key Rate, %

25

27

29

31

33

35

37

39

-3,0

-2,5

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

11.0

1.11

11.0

3.11

11.0

5.11

11.0

7.11

11.0

9.1

1

11.1

1.11

11.0

1.12

11.0

3.12

11.0

5.12

11.0

7.12

11.0

9.1

2

11.1

1.12

11.0

1.13

11.0

3.13

11.0

5.13

11.0

7.13

11.0

9.1

3

11.1

1.13

11.0

1.14

11.0

3.14

11.0

5.14

USD

RU

B

Net

sale

FX (-)

/ p

urc

hase F

X (+), U

SD

bn

CBR incr eased FX cumulat ive inter vent ions to fight r uble

depr eciat ion and vol at il ity, but this is tempor ar y

CBR interventions on the domestic FX market, $ bn USDRUB Curncy

On March 3 CBR

interventions exceeded

USD11 bn. per day.

Source: CBR, Bloomberg, VTB Capital IM Research estimates

Many developing countries

have started to raise interest

rates in response to capital

outflows earlier than Russia

did.

For example countries such as

India, Turkey, Brazil and South

Africa reduced pressure on

national currencies by raising

interest rates.

Half a month after the interest

rate hikes, the currencies of

the above countries had

appreciated vs the US dollar.

After the CBR raised interest

rates, the USDRUB began to

appreciate, and this process

still looks incomplete.

Prospects of Russian ruble in light of the latest CBR actions

-1,0%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

-45 -38 -31 -24 -17 -10 -3 4 11 18 25 32 39

Appre

cia

tion (

+)

/ depre

cia

tion o

f national

curr

encie

s vs U

SD

, %

Days before and after interest rate increases

Nat ional cur r ency movement befor e and af ter

inter est r ate hikes in 2014 - India, Tur key, Br azil ,

S.Af r ica cases, aver age

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

-45 -35 -25 -15 -5 5 15 25 35 45 55

USD

RU

B a

ppre

cia

tion (

+)

/ depre

cia

tion,

%

Days before and after interest rate increases

Rising inter est r ates of CBR hel ped stabil ize and

st r engthen the r uble in r ecent months

(04.03.2014=0)

30,00

33,00

36,00

39,00

42,00

45,00

Russian CBR is tar get ing dual -currency oper ational bands at a wide range and significant l y increased FX interventions to support rubl e

CBR lower Band CBR Upper Band

BI-BASKET (55%USD/45%EUR)

20,0

50,0

80,0

110,0

140,0

170,0

Real exchange rate per $ (Dec'97=100)

Real exchange rate per € (Dec'97=100)

RER bi-currency basket (dec'97=100)

Over the l ast 12 months USDRUB has depr eciated in nominal

and r eal t er ms

Based on oil prices the

USDRUB rate should be about

33.7. Based on purchasing

power parity (PPP) the

USDRUB should be in the range

of 27-30.

Based on key macro factors

(e.g. no-oil federal budget

balance, current account

balance, GIR to import ratio)

USDRUB looks fairly valued

around 35 rub.

It means that FX adjustment

necessary for balancing key

macro variables in the near term

seems to be done.

Market expectations for

USDRUB are trending lower

from 36.5 3 months earlier to

35.9 rub. for the end of this year

at present.

All in all, summarizing the above

factors, the fair value of

USDRUB shifted to the range of

33.0-34.0 rub and ruble looks

slightly undervalued at current

levels. * Macro factors such as non-oil federal budget balance, current account balance, GIR to import ratio

Source: IMF, CBR, Minfin, Rosstat, Bloomberg, VTB Capital IM Research estimates

What is the FV of USDRUB?

15,0

20,0

25,0

30,0

35,0

40,0

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Based on macro factors* USDRUB fair ly valued

at 35

USDRUB actual USDRUB FV based on macro factors

1 2 2 35

7 7 8 911

1314

1618 18

21

2425

27 2728 2930

0

5

10

15

20

25

30

35

40

95

96 97

98

99

00 01

02

03

04

05

06 07

08

09 10 11 12 13

14 F

15 F

16 F

17 F

USRUB for PPP, IMF Official USDRUB rate at end period

USDRUB is underval ued on PPP

33,7

35,9

22

26

30

34

38

20 40 60 80 100 120 140

USD

RU

B14

eop

Crude oil price, USD/bbl average

USDRUBis underval ued based on oil pr ices

Trailing 2000-2008

Trailing 2009-2013

USDRUB based on oil prices (2014, eop)

Bloomberg Consensus (2014, eop)

27,00

29,00

31,00

33,00

35,00

37,00

39,00

Bl oomberg consensus USDRUB has been l owered f rom

36.5 to 35.9 for the end of 2014 after de-escalat ion of

geopol it ical cr isis in Ukraine

USDRUB Bloomberg consensus (2014 eop) USDRUB current USDRUB NDF 3 months

Source: Federal Customs Service, VTB Capital IM Research estimates

Russia trade turnover is mostly concentrated in Europe and Asia

In 2013 Russia foreign trade

turnover has amounted to USD

668 bn.

Major trading partners of

Russia across regions are

Europe and Asia with trade

turnover much than 90%

together.

Trade turnover with American

region is about 6%. Other

regions are less than 1%.

Major trading partners of

Russia by countries are China,

Netherlands, Germany, Italy,

Japan and Turkey. Trade

turnover with USA is estimating

at 4% only.

In the coming years we should

expect a significant growth of

trade turnover with Asian

region, especially with China

after the recent hydrocarbons

long-term agreements

negotiation.

China

13%

Netherlands

12%

Germany

11%Italy

8%Japan

5%

Turkey

5%

Poland

4%

USA

4%S.Korea

4%

Great Britain

4%

Others

30%

Russian Foreign Trade Turnover by TOP-10

countr ies, % of Total (2013)

Total trade

turnover at 668 bn USD

Europe

60%Asia

33%

Africa

1%

America

6%

Australia and

Oceania

0%

Russian Foreign Trade Turnover by regions, % of

Total (2013)

Total trade

turnover at 668 bn USD

0%

20%

40%

60%

80%

100%

Russian Foreign Trade Turnover by regions, % of

Total

Australia and Oceania America Africa Asia Europe

300 000

400 000

500 000

600 000

700 000

800 000

Russia For eign Trade tur nover is r ising since 2009

Russian Foreign Trade Turnover, bn USD

Equities: sector preferences

Sector Selection Scorecard

FactorFactor

weight, %

Metals&

MiningOil&Gas

Mobile

Telcos

Fixed-line

Telcom

Electric

Gencos

Electric

GridsBanking Retail Fertilizers

Multiples vs growth 8% 0 0 0 0 1 1 1 0 -1

Cycle-adj P/E vs hist avg 14% -1 0 -1 0 0 1 1 -1 0

P/BV vs ROE 9% -1 1 0 0 0 0 1 -1 0

Valuation vs EM peers 9% -1 0 0 0 1 1 1 -1 0

6m ERM 20% 0 0 0 0 -1 -1 0 1 -1

DY vs payout 8% -1 1 0 0 0 1 0 0 -1

FCF Yield 2016 8% 0 0 0 1 1 -1 0 -1 0

Risks / Governance 8% 0 0 0 0 -1 -1 0 0 0

Contrarian 8% 0 -1 0 0 0 0 1 -1 0

Economic Cycle 8% 0 0 1 1 1 1 0 1 0

Aggregate score 100% -0,4 0,09 -0,06 0,16 0,05 0,11 0,48 -0,2 -0,36

Scoring methodology: -1=UW, 0=Neutral, 1=OW


-0,4-0,36

-0,2

-0,06

0,050,09 0,11

0,16

0,48

-0,5

-0,4

-0,3

-0,2

-0,1

0

0,1

0,2

0,3

0,4

0,5

0,6

Sector Aggr egate Scor e

-3%

13%

21%25%

41%

50%55%

67%70%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

DCF Upside/ Downside

Banks and utilities look

attractive based on a

combination of relative

valuation metrics.

Retail, mobile and

fertilizer sector

valuations look

stretched.

Metals & mining sector

valuations should be

considered with an

understanding that

profitability is at

historical lows.

* - P/E multiple is used for banks instead of EV/EBITDA. Last 5Y average valuations of EM Utilities were used as a benchmark due to lack of adequate data

for Russian Utilities

Sector relative valuations


Metals&MiningMobile Telecoms

Fixed-line TelecomsElectricity Gencos

BankingConsumer Staples

Retail

Transportation

Fertilizers

0,0

5,0

10,0

15,0

20,0

25,0

0% 5% 10% 15% 20% 25% 30%

P/E

2014

E

EPS CAGR 14-17E

P/ E Mul t iples versus expected growth

At t ract ive

Expensive

116%

110,9%

109%

102%

83%

78%

69%

63%

49%

22%

0% 20% 40% 60% 80% 100% 120%

Fixed-l ine Tel com

Ret ail

Mobil e Tel cos

Fer t il izer s

Tr anspor t at ion

El ect r ic Gencos

Met al s&Mining

Oil &Gas

El ect r ic Gr ids

Consumer st apl es

EV/ EBITDA 2014E as % of Last 5Y Aver age*

Metals&Mining

Oil&Gas

Fixed-line Telecoms

Electricity Generation Banking

Consumer staples

Retail

Transportation

Fertilizer

0,0

1,0

2,0

3,0

4,0

5,0

6,0

5% 10% 15% 20% 25% 30%

P/B

V M

ultip

le

ROE 2013E, %

P/ BV vs ROE

At t ract ive

Expensive

116%

94%

81%

67%

66%

58%

55%

50%

42%

32%

7%

0% 20% 40% 60% 80% 100% 120%

Ret ail

Mobil e Tel cos

Oil &Gas

Fixed-l ine Tel com

Fer t il izer s

Met al s&Mining

Transpor t at ion

Banking

Consumer st apl es

El ect r ic Gencos

El ect r ic Gr ids

P/ BV as % of Last 5Y Average*

Russian electric utilities

and oil & gas names on

average trade with

hefty discounts to

international peers on

key valuation metrics.

It is best to avoid

mobile telecoms and

retail, searching instead

for value in electric

grids and metals &

mining from an

opportunistic point of

view.

Sector relative valuations (continued)


Metals&Mining

Oil&Gas

Mobile Telecoms

Fixed-line TelecomsElectricity Generation

Electric Grids

Banking

Consumer Staples

Retail

Transportation

Fertilizer

0%

20%

40%

60%

80%

100%

120%

140%

10% 20% 30% 40% 50% 60% 70%

P/B

V a

s %

of La

st

5Y A

vg

% Buys

El ectr ic Ut il it ies / Metals&Mining wor th a l ook based on a contrar ian approach. Retail and Mobile t elecom sectors l ook overheated

Cheap and

Unpopul ar

Expensive and

Popul ar

17%

-17% -19%-22% -22%

-43%-48%

-65%-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

EV/ EBITDA 14E Pr emium/ Discount vs

Inter national Peers

47,0%36%

-23%

-42%

-59% -62% -66% -68%

-92%-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

P/ BV Pr emium / Discount Rel at ive to


18%

-14%

-26% -27%-34%

-39%

-56%-60%

-82%-100%

-80%

-60%

-40%

-20%

0%

20%

40%

P/ E 14E Pr emium/ Discount Rel ative to


Equities: cycle-adjusted valuations

All key sectors presently

trade with significant

discounts to historical

average P/E ratios, using

their long-term EPS trend in

the denominator.

As a result of this approach,

the most attractive sectors

are utilities, gold mining and

banks.

The normalization of sector

ROEs toward long-term

sustainable levels could

provide a substantial

earnings boost for the

metals & mining sector as

well as electric utilities.

However, profitability in

mobile telecoms, banking

and retail names looks

vulnerable in the long term.


32,0%

10,3%

8,2%

-5,3%

-21,3%

-29,8%

-39,1%

-62,1%

-62,6%

-74,2%

-100% -80% -60% -40% -20% 0% 20% 40%

Base Metal s

St eel

Ret ail

Mobil es

Oil

Gencos

Gazprom

Discos

Banking

Gol d

Tr end P/ Es as % of Histor ical Aver age

13,5%

8,8%

-6,2%

-8,2%

-9,2%

-11,1%

-11,5%

-12,9%

-21,1%

-39,3%

-60% -40% -20% 0% 20%

Ret ail

Base Metal s

Mobil es

St eel

Oil

Banking

Discos

Gazprom

Gol d

Gencos

Consensus For war d 12m EPS as % of Long-Ter m Tr end

-82,5%

-55,0%

-33,5%

-32,4%

-30,0%

-26,7%

-26,7%

-6,0%

3,6%

28,4%

137,4%

-120% -70% -20% 30% 80% 130% 180%

Steel

Base Metals

Fertilizers

Discos

Gencos

Gazprom

Fixed-Line Telcos

Mobiles

Oil

Banking

Retail

Consensus EPS Revisions 2011-2013 (peak to t r ough), %

184,2%

99,8%

63,6%

27,1%

18,4%

-1,2%

-4,7%

-12,6%

-16,8%

-17,7%

-23,5%

-75% -25% 25% 75% 125% 175% 225%

El ect r ic Gr ids

El ect r ic Gencos

Transpor tat ion

Consumer st apl es

Oil &Gas

Fixed-l ine Tel com

Mobil e Tel cos

Banking

Metal s&Mining

Ret ail

Fer t il izer s

EPS Revisions Result ing For m ROE Normal izat ion

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