Gazprom (GAZP:RX)… willing investors?

By: ispeculatornew
Date posted: 01.07.2009 (4:00 am) | Write a Comment  (2 Comments)

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Gazprom, ever heard of it? It is the largest Russian company, the most important natural gas exporter in the world. You probably have not heard much about its stock simply because it is not listed on US markets. But still, at one point last year, Gazprom was the third largest company in the world (measured by market cap). To buy shares of Gazprom, you will need to venture yourself on the Russian exchange! The stock is down about 70% from its high of a few months ago and with Bloomberg reporting a P/E ratio of under 4, it certainly looks attractive from valuation measures.

The main problem of course is that Gazprom lives in a very complex business environment. Not only is it located in a fairly unstable Russia (unstable in many ways, currency, economy, mililtary, etc) but it also being used in many ways as a weapon. In fact, it is one of the major sources of power of the Russian government, perhaps even as important as its army. To see examples, look no longer than the recent spat with Ukraine. Gazprom had been selling its natural gas at a price of 179.50$ in 2007 to Ukraine and decided to take the price up to 450$ per 1000 cubic liters. Market prices going up? Sure, but this is not really the issue.

Gazprom has what is in effect a monopoly in Europe for sales of natural gas and has been known  to push around its closes neighbours as well as threaten Western Europe. Because of this, it is safe to argue that:

-Profitability is not the sole objective of Gazprom: In fact, it sometimes is not even considered in the equation when dealing with customers. Political motivations can be a lot more important in many cases.

-Since Gazprom is so crucial to the power of the Kremlin, it is easy to see how the government could change the rules of the games, especially those for foreign investors. This could happen at any point, probably not right now because Russia is suffering so much from the economic turmoil that it cannot afford to scare off investors. But give Russia some better conditions and we have no idea what will happen.

The problem with investing in Gazprom is that you have to look into so many different factors and how it’s possible to price these political factors in seems very much like playing Russian Roulette.. of course, some investors are happy to play, but I’m not!

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2 Comments

  1. Comment by EasyLearnStockMarket — January 7, 2009 @ 5:57 pm

    I might trade it, but I certainly wouldn’t invest in it. I don’t trust any company controlled by politicians (FNM?) or dictators. Also, with commodities down the ruble isn’t going to hold up well against the dollar (IMHO) well – so you’re fighting that as well. Also, with Russia freezing out Europe, the Europeans will likely put more effort in energy independence killing some of the edge Gazprom has had in the past.

    -Bill

  2. […] Gazprom (GAZP:RX) – willing investors? at Intelligent Speculator A basic introduction to Gazprom. It is traded over the counter here in the US. Stocks: OGZPY […]

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