Page 7 - FSUOGM Week 50 2021

FSUOGM PERFORMANCE FSUOGM

Gazprom top blue chip as European

gas prices keep heating up

RUSSIA BCS Global Markets has reiterated a Buy call 40% to $26bn”, BCS GM argues.
on the shares of Russian gas giant Gazprom Dividends on 2021 results should be
Gazprom has benefitted and maintained the name on the list of Top RUB46/share (14% dividend yield), some 2.8x
from a spike in gas Pick in Russian Oil & Gas equity universe. 2018’s record of RUB16.6/share, and the 2022
prices in recent months. Driven by the European gas prices setting new dividend should reset that 2021 record, com-
records, the analysts increased the target price ing in at perhaps RUB73/share or a 22% DY.
for Gazprom’s shares by 2%, making an esti- The estimates of BCS GM are based on
mated 47% excess return with 22% dividend export gas price assumptions of full-year
yield expected in 2022. export price for 2021 at $315/mcm (1,000
As followed by bne IntelliNews, core earn- cubic meters), but the analysts now raise the
ings of Gazprom soared to a new record in the 2022 expected price 50% to $560/mcm to bet-
third quarter, against a backdrop of a severe ter align with futures markets.
supply crunch on the European gas market “This is still a conservative assumption,
that has led to historically high gas prices. reflecting the fact that c50% of Gazprom’s
“Record-high European gas prices finally export prices will be set by day and month-for-
began showing up in Gazprom’s 3Q21 finan- ward hub prices, implying no small amount of
cials,” BCS GM notes, expecting the rise to volatility is likely in earnings assumptions as
accelerate this winter and the 4Q21 EBITDA 2022 progresses,” the analysts argue.
jumping 70% quarter on quarter to $19bn. The investment case of Gazprom still rests
This would make Gazprom’s second-best on major catalysts that are still at play. BCS GM
EBITDA in history after 1Q13’s $20.6bn. But now expects the Nord Stream 2 pipeline to be
the company would not stop there, with “1Q22 launched by the end of the heating season,
EBITDA should blow past that, rising another most likely by the end of February. ™

Naftogaz improves P&L in 9M21

UKRAINE UKRAINE’S leading natural gas producer and resulted in an overall cash outflow from Naf-
trader Naftogaz (NAFTO) increased net reve- togaz accounts of UAH28.8bn in 9M21. As
But the national gas nue 31% year on year to UAH136.7bn ($5.08bn) a result, the company’s cash and equivalents
company is also in 9M21, according to its financial report of decreased 84% YTD to UAH5.9bn and its net
burning through its December 10. Key growth segments were hydro- debt increased 93% YTD to UAH56.4bn as of
cash reserves. carbon production (up 84% y/y) and gas trading end-September 2021. Its ratio of net debt to LTM
& retail (up 83% y/y), where growth was mostly EBITDA reached 1.52x as of end-September, up
due to increased natural gas prices. from 1.25x as of end-December 2020.
The company’s EBITDA improved to The results imply that in 3Q21 alone,
UAH12.4bn in 9M21, from negative UAH1.2bn the company’s revenue decreased 5% y/y
a year ago. Key contributors to the result were to UAH30.5bn, EBITDA turned to nega-
the exploration & production segment (EBITDA tive UAH0.5bn (from positive UAH0.5bn in
more than doubled y/y and reached UAH34.8bn) 3Q20) and a net loss halved y/y to UAH2.7bn.
and Ukrnafta (EBITDA reached UAH5.9bn in Its quarterly cash outflow from operations was
9M21, from negative UAH2.2bn a year ago). UAH37.2bn (vs. UAH1.1bn inflow in 3Q20)
Excluding expenses related to the impairment and the increase of net debt was UAH48.5bn
of financial assets, Naftogaz’ EBITDA increased (up 9.2x y/y).
3.4x y/y to UAH33.9bn. The company’s net loss Naftogaz’ liquidity position looks shaky due
decreased 74% y/y to UAH4.4bn. to the large outflow for the inventories build-up
Naftogaz’s operating cash flow before and prepayments in 3Q21. At the same time, we
working capital changes improved 2.5x y/y do not expect any problems with Naftogaz’ abil-
to UAH37.7bn in 9M21, but net cash flow ity to pay its bills, even though the company still
from operations was negative at UAH19.4bn has social obligations on the natural gas market.
(vs. positive UAH16.1bn a year ago). This was The company can always count on support from
mostly a result of inventories being built up state banks, should it need some. At the same
for UAH50.9bn in 9M21 (vs. cash inflow from time, analysts at Concorde Capital do not rule
inventories releases of UAH13.0bn a year ago). out a downgrade of Naftogaz’ credit ratings or
Cash outflow from operations and invest- their outlooks, based on the company’s deterio-
ments into PP&E for UAH11.0bn (-7% y/y) rated balance sheet. ™

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