Page 91 - bne IntelliNews Russia Country report May 2017

Gazprom has reported robust IFRS results for 1Q17 , adding 33%, 27% and 17% y/y on revenues, EBITDA and net income, respectively (broadly in line with our forecast and slightly better than the consensus estimates). Nevertheless, the substantial increase in working capital, driven by the reclassification of deposits, badly affected the company’s FCF, which was reported at minus $3.7bn. This put some pressure on the stock. VTBC unchanged 12-month Target Price of $2.40 implies an ETR of 18%. Slightly greater domestic gas revenue. Gazprom’s net revenues were up 33% y/y to $30.9bn in 1Q17, which is 1.6% and 3.4% higher than our and the consensus expectations, respectively. The main discrepancy in net revenues can be attributed to domestic revenues being better than we expected; they were reported 9% above our forecast as domestically Gazprom sold 4% more gas than we forecasted. European and FSU sales came in line, as did liquids and other revenues. EBITDA in line. Core operating expenses came in line with our forecast. However, the much greater than expected Other operating costs of $2.2bn, which doubled y/y (we had forecast $1.7bn or 55% growth), compensated for the slightly higher revenues on the EBITDA level. As a result, EBITDA came only 0.6% lower than our forecast. We continue to emphasise that the company is increasing the share of so-called Other costs, which already account for more than 10% of opex and the nature of which is completely unclear. Supported bottom line. Gazprom’s bottom line was additionally supported by the FX gain of $2.1bn (which was close to our forecast), as well as by some $500mn income from associates (which was $330mn higher than we expected), but this difference was offset by the $400mn higher DD&A. As a result, Gazprom’s net income was reported at $5.7bn in 1Q17, which is broadly in line with our forecast.
Gazprom and Novatek’s Tambey group gas reserves revised up 160%.
Novatek might be potential partner in the project. During his meeting with President Vladimir Putin, Gazprom CEO Alexey Miller said that the gas reserves of four Tambey group fields on the Yamal peninsula, which are owned by Gazprom, had been revised upwards from 2.6tcm (ABC1+C2+C3) to 6.7tcm, reports Kommersant. The President has requested that the company analyse the potential schemes for developing field and potential partners in the project. Novatek seems to be a potential partner for Gazprom in developing these fields, given that they are located close to the Yuzhno-Tambeyskoye field, and all of Yamal LNG’s associated infrastructure. In late 2016, the Russian broadsheets reported that Novatek was ready to offer Gazprom up to 3% of its own shares for these four fields. Given that the reserves have been revised up some 160%, the entry costs might now be reconsidered. We think that the fact this matter is gaining traction is likely to be supportive for Novatek’s shares.
Surgutneftegas delivers good FY16 IFRS earnings . Revenue amounted to RUB1,222.2bn (-4% y/y, +5% vs ATON) while EBITDA reached RUB337.6bn (+7% y/y, +15% vs ATON, +9% on Bloomberg consensus). The company expectedly delivered a negative bottom line after its enormous FX loss of RUB438.6bn on the back of the stronger ruble: a RUB62.1bn net loss vs RUB761.6bn net income a year ago, and lower than we expected (-RUB110.6bn). The IFRS net loss is also much more moderate than the RUB104.8bn net loss that the company revealed in its FY16 RAS accounts. More positively, Surgutneftegas more than doubled its FCF in 2016 vs a year ago (RUB74.8bn vs RUB22.5bn, respectively) chiefly thanks to much lower income tax paid that resulted in an improved OCF performance (+32% y/y). Surgutneftegas's total cash pile increased to $37.7bn from $35.3bn a year ago
91 RUSSIA Country Report May 2017 www.intellinews.com