Giant Russian bank looks not only robust but cheap

A bit of news you may have missed during the long weekend amid angst over the U.S. job market: Russia’s biggest lender Sberbank (SBRCY (quote) is rocketing along thanks to a strong ruble and stronger consumer environment.

Image courtesy Valera N. TrubinEven CEO German Greef’s broken leg — suffered a few weeks ago and reported just yesterday, is not slowing this company down.

The question is why the stock has yet to respond to spectacular numbers. First-quarter profit is up 16% at $3.3 billion and the overall loan portfolio surged 5.5% on a year-over-year basis.

As the banking analysts at Moscow-based TKB Capital point out, what’s really exciting here is that the already-substantial gap between Sberbank and everybody else in the country’s financial sector is getting wider.

Sberbank was already touting its 31% share of all Russian credit last year. But since 2012 began, its loan portfolio has expanded by 3.8%, twice as fast as the overall growth of lending throughout Russia.

Do the math, and it’s clear that the leader is growing its business — and its share of the market — almost four times as fast as the rest of its competitors put together.

Most of Sberbank’s new loans are to retail customers, the fastest-growing segment of the Russian credit markets and practically virgin territory. Per capita, Russians have borrowed only 18% of what Americans currently owe, so there is a lot of room for SBRCY to expand this relatively high-margin business.

Naturally, Moscow may not want its population to go deeply into debt, but as yet Sberbank is not having much problem with delinquent accounts. Overdue loans actually declined as a percentage of the overall portfolio over the last three months, coming in at 3.34% — roughly in line with leading U.S. institutions — and the bank has deep reserves to cover any losses.

So why have SBRCY shares declined 5% since the news came out on Friday?

Part of the problem is that traders coming back to Wall Street threw Sberbank’s good numbers out with the dirty bathwater of last month’s U.S. job market data.

In the vicious cycle of evaporating U.S. economic hopes dragging down oil prices, emerging markets stocks and other “risk” assets, Russian assets have suffered outsize losses. Sberbank, as a favorite proxy for the domestic Russian economy, has suffered worst of all.

But like Russia itself, SBRCY is no stranger to boom and bust cycles. Remember, this is a stock that can give up 50% of its value in a harrowing three-month plunge and then shoot up 75% from there.

Right now, SBRCY is a lot closer to the recent peak than to the 2011 trough, but the selling looks overdone.

SBRCY is now trading 6% below the 50-day line that supported it since global emerging markets started rallying back in October. Simply unwinding the kneejerk decline of the last week — in other words, baking Friday’s good news back into the stock — will put it within range of turning that line back into support.

If that happens, we could be ready to test the July high again, which would indicate another 25% or so in untapped upside for traders willing to ride the waves.

One other note on sentiment: rumor had it for a while that the Bank of Russia was rushing to float a massive 7.6% of SBRCY on the open market at a price of around $13.40 per U.S. share.

While the “imminent” float seems grossly overstated, the company does seem to be prepping for a road show later this month.

Until then, the overhang of new issuance will probably create a ceiling on SBRCY. After all, why buy in above $13.40 if the market will soon be full of shares at that price?

But that’s only a short-term concern when you have a world-class bank — the second-largest in Europe, almost twice as big as Deutsche Bank and UBS combined — trading at a P/E multiple below 7. That’s on a par with the most tension-laden banks of China, and less than half what the high-flying banks of India are trading at.

In terms of ETF exposure, ERUS (quote) is definitely more concentrated in SBRCY shares than RSX (quote), with a relative weighting of 10.73% in the stock compared to its better-known rival’s 5.56% allocation.