Vostok Nafta — Fair Value Requires a Time Machine

By Travis Johnson, Stock Gumshoe, June 17, 2008

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About a week ago Vostok Nafta released its estimate of Net Asset Value (NAV), the value of the investments held by the fund.  They release this data every month, but only once a month, and they release the NAV at the close of the prior month on about the tenth — so on June 10th, for example, they announced that the NAV was $21.82.

If we look back to June 10, clearly that announcement caused the shares to dip (in Sweden, at least, the shares often don’t trade much, if at all, on the pink sheets).  They had gotten a bit ahead of the NAV, so the shares were trading at close to a 15% premium to the NAV, which is fairly high for them.  With the dip, we now trade at roughly a 10% premium to the NAV of two weeks ago … so if you’re interested, part of the calculus has to be whether you think their Russian holdings are more valuable now than they were at the end of May.

Some of the shares are publicly traded, if thinly, so you can get some idea by looking at the share price for Black Earth Farming, for example, since that’s something like a quarter of the holdings.  Or you can estimate how the other stocks and holdings are doing (some are private companies, not publicly traded) by looking at the change in one of the Russian indexes — though unfortunately, the Russian indexes are pretty well dominated by Gazprom and Rosneft, neither of which is a good match for Vostok Nafta’s holdings (though they also do hold a fair amount of energy names, of course).  The Russian index, as measured by the ProShares RSX ETF, are a bit more stable than Vostok Nafta, and didn’t spike up quite as much at the end of last month, but have also trended down slightly since then.  Black Earth has been in a downturn for a while, but over the past month has fairly closely matched Vostok Nafta’s share price.

So are we any smarter?  Probably not.  I’m holding these shares because I’m more comfortable with having a manager invest in Russia for me — especially one who follows the investment strategies that Vostok Nafta does, and that has a Lundins connection and a Swedish base (meaning, they’re not US investors ...

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