Page 13 - FSUOGM Week 34

FSUOGM PERFORMANCE FSUOGM

Gazprom Neft cash flow

disappoints investors

RUSSIA GAZPROM Neft released its 2Q20 IFRS on could not be ramped down quickly in response
August 20 with EBITDA and net income in line to the coronavirus (COVID-19) crisis’ effects
EBITDA and net with expectations, but the cash flow performance on commodity markets. However, CapEx is
income were in line disappointed investors. set to come down in 2H20, while the situation
with expectations, The company generated revenues of $5.5bn in upstream profitability has improved signifi-
however. that were 1% over consensus expectations and cantly since April’s lows. Therefore management
EBITDA of $0.92bn that was 8% over the fore- forecasted neutral to even positive FCF for FY20,
casts. But if the contribution from JVs is included reports BCS GM.
then the EBITDA was $1.15bn, which was in line "We note that the company’s capex contin-
with consensus expectations. ues to grow, despite the previously announced
Finally, net income of $0.31mn was slightly plan to cut it 20%, which we see as a concern,"
above the Street’s expectations of c$0.3bn. VTB Capital (VTBC) commented on August
“On the negative side, free cash flow (FCF) 21. VTBC maintained a Hold recommenda-
came in weak at -$1.1bn, worse than our expec- tion on the name with an estimated total return
tation of approximately zero, and down from an of 17%.
average of +$0.54bn per quarter for the previous As commented by the management, elevated
5 periods. This was due to weak operating cash capex in 1H20 is the result of investment deci-
flow, which fell 75% from the recent average sions being made in 2019, when no one expected
of $2.3bn/q to $0.5bn in 2Q20 and CapEx that such an adverse market environment; and some
remained robust at $1.6bn, but up 5% q/q and up capex being spent on strategically important
c160% year on year. The weak cash flow numbers projects.
drove Net debt/EBITDA up to 1.22x, +39% vs The company intends to pay interim divi-
the 0.88x of 1Q20, and +87% vs the c0.65x of the dends after the 9M20 results instead of distrib-
previous 5 quarters,” BCS Global Markets said uting dividends for 6M20.
in a note. VTBC believes that "the decision to postpone
However, the management explained during the timing of interim dividends is neutral, as it
a conference call on August 19 that the cash flow will not affect the dividend amount."
situation should quickly improve and possibly The company’s estimate for the 6M20 implied
turn positive over the rest of this year. dividend of RUB2 per share is slightly below the
Management said that a surge in CapEx in RUB2.40 predicted by VTBC, but the difference
1H20 (+77% y/y to $3.1bn vs. $1.8bn in 1H19) in dividend yield is not significant enough to
was being driven by the development of two new justify a market reaction, the investment bank
major projects, OGF and Zima, where CapEx believes. ™

Week 34 26•August•2020 www. NEWSBASE .com P13