Not since a big red one came roaring down the track in Dr Zhivago have Russian trains made so much noise. Russian Railways, operator of the world’s second-largest rail network after the US, is in the throes of modernisation. Other bits of the post-Soviet rail system have tapped the capital markets. Now Globaltrans, a private rail freight operator, is topping up its 2008 London stock market listing with a $450m secondary offering. The question is whether Globaltrans, like the economy, is too dependent on Russia’s natural resources narrative.
The original investment case for Globaltrans was the liberalisation of Russia’s rail freight market to end the monopoly of Russian Railways. Private companies still have to lease the track from the state operator. But they seem more ready to invest in new rolling stock: Globaltrans will buy 10,000 freight cars as part of its 2012 capital expenditure programme. It is acquisitive too, as April’s $540m purchase of MIT, a freight operator for Russia’s metals industry, shows. The company has a secure foothold in the freight market: about 8 per cent of the market by 2015, according to Goldman Sachs. That still leaves room for growth. The most obvious way is by acquisition: many of Russia’s industrial groups are shedding their captive freight operations. The likes of Globaltrans are natural buyers.
That is not reflected in valuations: Globaltrans trades at only two-thirds of the average for the global rail freight sector. This could reflect its exposure to the problematic Russian economy. For the moment, the group looks to be too skewed to natural resources: about two-thirds of its $1.7bn 2011 revenue was from carrying oil, gas, coal and iron ore. It would benefit from privatisation of the energy sector (which is in limbo) and if the predicted construction boom tied to housing, transport and the 2018 World Cup happens.
Email the Lex team in confidence at lex@