Page 34 - bne_Magazine_September_2018

34 I Special focus bne September 2018
Secretive Surgutneftegaz is top dividend dog
Russia is paying the best dividends in the world, but no one is paying more than the secretive Russian oil major Sur- gutneftegaz, which expects to hand its shareholders a massive 19% dividend yield this season.
Surgutneftegaz is a strange company and an unlikely candidate for investor’s darling, as it deliberately obstrufi- cate reports and remains so opaque that no one knows for certain who actually owns the company. Investor, turned activist, Bill Browder told bne IntelliNews that he was thrown out of Russia after he showed an investment con- ference and organogram detailing the 600 shell companies that were used to hold the company’s shares.
More practically investors are also unclear as to what happened to a sizeable number of the company’s treasury shares. But the company is famous for its $40.6bn cash pile and the current market conditions mean it is mak- ing money hand over fist, which it is happy to share with shareholders.
With costs denominated in rubles, but earnings in dol- lars, Russian oil companies are always big winners from devaluations and the ruble is down this year 17% since January, while oil prices have been averaging over $75 per barrel in the last three months.
Surgut is making money from both pumping crude and its cash: the company earns RUB0.80/share in dividends per
share (DPS) –12% of total DPS or a 2.2% dividend yield – just from interest income earned from its cash pile.
On top of that, because its cash is in dollars, Surgutneft- egaz earned yet another RUB2.9/share – 42% of total DPS or a 7.8% dividend yield – from currency gains due to this year’s devaluation of the ruble.
That means Surgutneftegaz will pay a 10% dividend yield earned just from its cash pile – about twice the MSCI Emerging Market average yield – before earnings from pumping a single drop of oil are included in the payout.
“All these factors, if they persist, could well support the company’s financial performance in the second half of the year. We calculate that if the ruble stays at the current level of RUB66.80 by the year end and Urals averages $71/ bbl in 2H18, Surgutneftegas might deliver an 18.6% DY (RUB6.80 DPS) for 2018, the highest among Russian Oil
& Gas names,” Sberbank said in a report reiterating the stock as the bank’s top pick in the oil and gas space with a Buy recommendation.
The stock has already performed well recently along with other commodity companies on the back of rising oil and metal prices, gaining 10.3% in dollar terms since the end of June and outperforming the RTS oil and gas index by 18.1%. “But we believe there is some room for upside left,” Sberbank concluded.
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