UBS Upgraded Qiwi, Yandex To Buy, Notes Improving Russian Macro Environment

In a report published Wednesday, UBS analyst Ulyana Lenvalskaya explored the Russian Internet space and upgraded shares of Qiwi PLC QIWI and Yandex NV YNDX to Buy as signs of an improving macro environment translates to a more bullish view on the sector.

According to Lenvalskaya, the Russian internet services sector has underperformed Russian exporters by 17 percentage points year-to-date. The sector offers investors a "pure domestic play" and will benefit from a recovery in the economy.

"With growing investors' interest to the Russian domestic sectors, we believe the Internet sector is particularly well-positioned as not only the top-line growth might potentially re-accelerate in the second half of 2014 following most recent rouble stabilization and taking into account low base, but also profitability of the sector should improve versus initial low expectations," Lenvalskaya wrote.

Why Yandex?

According to Lenvalskaya, the company is likely to see market share growth in the medium-term following the Russian FAS case launch against Google Inc GOOG GOOGL.

The analyst also noted that Yandex's recent operational improvements targeted at better monetizing users on mobile devices should show positive results in the second quarter.

Shares of Yandex were upgraded to Buy from Neutral with a price target raised to $23.8 from a previous $16.

Why Qiwi?

Qiwi cancelled its fourth quarter dividend due to what the company claimed as concerns over the Russian banking system stability. Lenvalskaya argued that these views now look "overstated" given recent stabilization in the rouble.

Lenvalskaya suggested that investors wait for either re-consideration of divided payments by management, or acquisitions announcement by Qiwi which could serve as a "stock trigger" in the medium term.

Shares of Qiwi were upgraded to Buy from Neutral with a price target raised to $30.10 from a previous $23.70.