“Gazprom is by acclimation the world’s worst company managed by the worst kleptocrats ever assembled on one continent.”
Most people would agree with that characterization of the Russian energy behemoth.
Interestingly, that quote comes from Jim Grant, who is bullish on the stock.
In an interview with Bloomberg TV’s Stephanie Ruhle from the Sohn Investment Conference, Grant said “the beginning, middle and end of the bull case on Gazprom is that good things happen to cheap stocks.”
Here’s Grant spiel courtesy of Bloomberg TV:
Yeah. So this is — first of all, it’s a huge company. Revenues of $US150 billion. The market cap is immense. They earn a lot of money even after, as my friend (inaudible) even after stealing they earn a lot of money. They pay a 5 per cent dividend. As recently as 2006, the stock changed hands at 10 times the estimated earnings. So now it’s at 2.5. And why is that? Well, because people know that there will be even more extreme and costly sanctions imposed on Russia. They know that something terrible is going to happen with the Ukraine election in a couple of weeks. And well it might. There is certitude about outcomes that is notable given that so few people saw the current set of outcomes approaching some months ago. So in addition to the epigram that good things happen to cheap stocks, I will offer this epigram. This too will pass.
This is not to say everyone should just throw Gazprom into their portfolios.
“Here’s a test of suitability for this investment,” said Grant. “You can’t care about the time.”
“Interest payments are covered by operating cash flow about 40 times over,” he added. “This is — this is a terrifically solid balance sheet. So there’s not a clock ticking on the business by dint — by dint of debt. And we know I think that solvent businesses don’t trade at 2.5 times yielding 5 per cent forever. So in the fullness of time is what — is my — is my horizon.”
In many ways, Grant’s thesis fits Warren Buffett’s rule: “Be fearful when others are greedy and greedy only when others are fearful.”