Gazprom ADR (OGZD:LSE)2003-09-04
We first came across this company in 1996, when we went to Moscow to assess its debt instruments, for a corporate client. At that time our decision was, to stay well clear of anything to do with the company.
However; we could see that Gazprom had massive gas reserves. We made a note to track the company & to look at it again if & when it listed on a major exchange & in a stable currency. Now that Gazprom is listed on the London stock exchange as an ADR, we are ready to invest in this gas behemoth.
When this company eventually gets valued alongside its Western peers, it stands to make current shareholders VERY WEALTHY.
Gazprom is Russia’s giant gas company and one of the biggest in the world. It accounts for 8% of Russia’s GDP. The company supplies 94% of Russia’s natural gas and 23% of total global demand.
Gazprom’s reserves are estimated as 30 trillion cubic meters of gas deposits. This equates to 25% of the world’s known natural gas reserves. It delivers over 20% of Western Europe’s natural gas and nearly all of Eastern Europe’s. And because it’s a relic of the Soviet years of state planning, Gazprom, until recently, had an almost total monopoly on the production and transport of natural gas within Russia, including exclusive rights to export to Europe, Turkey and China.
At the moment the stock is still incredibly cheap, when you take into account all of the above. Gazprom’s current market capitalization is roughly $13.8 billion. That’s compared to energy giants like Exxon Mobil at $300 billion, Shell at $121 billion or Texaco at $38 billion.
If Gazprom’s market value per barrel of reserves were equivalent to Exxon’s, the stock would be worth 132 times what it is at present!
Gazprom was privatized in 1992. What resulted is a two-tier structure in which the local shares trade at a 92% discount to the American Depository Receipts. In markets that are open to foreigners, ADRs usually trade at parity with the underlying ordinary. But in markets that are effectively closed to foreigners, like Russia, ADRs often trade for steep premiums to the underlying ordinary.
But even with this inequity, investors should be willing to pay a premium for the huge growth potential here.
If Gazprom were a Western company, it would be trading at a market cap in excess of $500 billion, at least. The value in this stock is like a sleeping giant. We may have to wait awhile for it to awaken, but when it does, there are huge profits to be had.
Gazprom is the biggest tax payer in Russia, so, it’s in the government’s best interests for Gazprom to operate as profitably as possible. Gazprom still flies below most brokerage’s radar screens. But with a restructuring of the company’s operations underway, it won’t be long before other Westerners realise that there’s a hugely undervalued asset in Eastern Siberia, ready to make patient investors very wealthy.
There are few markets in the world as undervalued as Russia. There are few markets in the world where you stand a chance of doubling your money in the next year. Gazprom, one of the world’s most valuable companies, sits at a stunningly low value. A value too low to resist.
Buy Gazprom (OGZD:LSE) today & hold for the foreseeable future.