Russian billionaire Roman Abramovich may not be as well recognised as Warren Buffett or Neil Woodford for being a successful investor, but he has had huge success with oil and aluminium assets in Russia. Having sold his majority stake in Sibneft to Gazprom back in 2005, he now has significant stakes in the following companies:
EVRAZ
Roman Abramovich holds a 30.80% stake in EVRAZ (LSE: EVR), a vertically integrated steel and mining company. He first invested in the company back in 2006, when he bought a 42% stake for reportedly $3 billion. His stake is now worth less than half, as falling steelmaking margins led to three consecutive years of losses.
With almost half of its revenues coming from Russia and Ukraine, the company has been particularly hard hit by the falling value of the Russian rouble and the Ukrainian Hryvnia. Foreign exchange losses in 2014 totalled $1.01 billion, with the group recording a net loss of $1.28 billion in the year.
However, the weaker Russian rouble also meant operating costs were lower, which boosted operating cash flows. This helped the company to reduce net debt by $720 million to $5.81 billion.
Shares in EVRAZ trade at a forward P/E ratio of 6.2. We could see a return to dividend payments, if net debt continues to fall and underlying profitability improves. But, market conditions in the global steelmaking industry have worsened in recent years and the company faces additional political risks given its sizeable operations in Russia and the former Soviet Republics.
AFC Energy
AFC Energy (LSE: AFC) is a developer of low cost alkaline fuel cell technology, in which Abramovich now has a 13.31% stake in. The billionaire bought an additional 744 thousand shares in the small cap company to increase his stake from 11.14% in October 2014.
The company has aspiring growth plans to produce fuel cell systems for generating clean energy from hydrogen. AFC has secured two major deals this year, looking at the potential development of large scale fuel cell generation sites. News of the deals sent its shares 341% higher year-to-date.
CEO Adam Bond has set an ambitious target of achieving 1 GW of capacity under development by the end of 2020. But, with the technology so new, it is difficult to be confident about future demand for a technology that is so dependent on subsidies, and where there are many alternative technologies.
Future profitability is also difficult to predict, as there are few comparable firms. The company, which is yet to make a profit, has net cash of just £4.9 million. Further investment needs could mean the company would need to raise new equity. Investing in the future of energy supply is certainly very high risk, but the potential returns could be enormous.
Velocys
Abramovich has been increasing his investments in Velocys (LSE: VLS) over the past year, and now owns a 21.29% stake in the gas-to-liquids (GTL) energy company. His stake in the small cap company was just 6.15% last year.
GTL technology has attractive growth prospects in the US, given the relative abundance of shale gas, and disconnect with liquid fuel prices. Although the falling oil price has hurt Velocys shares, the longer term fundamentals remain broadly intact.
Velocys is looking to build its first commercial GTL plant in Oklahoma, and has a pipeline of further projects. But, the company will continue to make losses in the medium term as R&D costs are very high. Although a high risk investment, the potential success of near term project execution presents a very real opportunity.
