Page 15 - FSUOGM Week 40

FSUOGM INVESTMENT FSUOGM

Surgut could sell shares, but treasury

issue unlikely resolved

RUSSIA THE board of Russian oil major Surgutneftegas ‘phantom’ treasuries," BCS GM notes.
might consider selling shares of the company, There is no reason to think this Board of
Surgutneftegaz is Interfax reported, causing a 5% rally in the com- Director decision has anything to do with the
known for its ultra- pany's shares. ‘phantom’ treasury shares, and thus there is no
conservative financial As followed by bne IntelliNews, Surgut is implied change to the current valuation of either
policies, which have Russia's oil sector's "dinosaur" known for its the ordinary or preferred shares, BCS GM ana-
enabled it to accrue a ultra-conservative financial policies, basing lysts argue.
$48bn cash pile. operations only in rubles, and its $50bn-odd However, with the ongoing weakness of the
cash pile, which is almost as much as Russia’s ruble so far in 2020 driving expectations of a
sovereign reserves. huge foreign currency gain on the company’s
However, the analysts of BCS Global Mar- $48bn ‘cash pile’ and a 40% payout of earnings
kets remained sceptical on October 1 about the per share, Surgut is likely to have its fourth very
potential of the share sale to resolve Surgut's two large dividend payout of the last 6-7 years, BCS
key corporate governance issues – the ‘phantom’ GM believes.
treasury position and the $48bn cash pile. "If the ruble ends the year at current spot
The company has a reputed massive ‘phan- levels, we’d expect the pref’s dividend yield to
tom’ treasury stake, which in the early 2000s approach 20%, while the ordinary share is likely
equalled at least 42% of outstanding ordinary to get no more than its traditional 2% yield," BCS
shares. Should those be sold or cancelled, there GM wrote while affirming a Buy call on the pre-
would a very strong value boost to both the ferred shares and Hold call on ordinary shares.
company’s remaining ordinary and preferred Surgut reported a 2% year-on-year revenue
shares. increase to RUB1.56 trillion ($20.8bn) for 2019
"Yes, SurgutNG may sell some treasury under Russian Accounting Standards (RAS),
shares, but the shares in question make up a with the cash pile of the company amounting to
very small packet acquired this summer by RUB2.98 trillion as the end of 2019, down from
court order, and have nothing to do with those RUB3.25 trillion as of end of 1H19. ™

Transneft drops 76% in

2Q20, capex cut

RUSSIA THE net profit of Russian state pipeline operator earnings, the bottom line was negatively affected
Transneft dropped 76% year on year and quarter by the RUB21.2bn (c$300mn) impairment
Earnings were down on on quarter in 2Q20 under IFRS, as a result of a provisions.
OPEC+ cuts. 20% decline in revenues driven by the oil output At the same time, Transneft disclosed capital
cuts under the OPEC+ deal. expenditure cuts to adjust for the stress scenario
As followed by bne IntelliNews, most recently of 2020-2021, which BCS GM sees as a small
Transneft delivered a positive surprise by recom- positive for the name, as cuts in capex would
mending the payment of a RUB11,612 ($150) immaterially affect long-term valuations and
dividend per share for 2019, in line with the 50% may indicate that Transneft will adhere to a 50%
net profit guidance previously outlined by the payout next year.
government. The company’s stress scenario implies a cut in
However, looking forward, as net income 2020 capex to RUB195bn (-20% versus the initial
in 2Q20 was the lowest in years, it could nega- plan and about 30% down from 2019 capex) and
tively affect 2020 dividends, BCS Global Markets a cut in 2021 capex to RUB210bn (-12% vs plan).
warned on October 5. The implementation of the updated invest-
The company's Ebitda amounted to $1.6bn, ment programme will still depend on the deci-
down by 21% q/q and by 12% y/y, but still 8% sions of federal authorities and parameters of
above the consensus expectations. With strong tariffs regulation, BCS GM notes. ™

Week 40 07•October•2020 www. NEWSBASE .com P15