Page 11 - FSUOGM Week 18

FSUOGM INVESTMENT FSUOGM
Gazprom cuts spending amid price crash
RUSSIA
Gazprom expects steep falls in sales this year.
THE management of Russia’s natural gas giant Gazprom, which posted a 17% dive in net pro t for 2019 and negative cash ow of about $7bn, has provided guidance on how the company would face the headwinds of 2020.
e company expects the supply volumes on the domestic market to decline 9% year on year in 1Q20 and 5% y/y on average for 2020, while exports are seen plunging by 17% y/y to 166.6 bcm accompanied by an over 30% drop in the price of exports.
However, the company hopes that the V or U- shape recovery from the coronavirus (COVID- 19) may drive gas prices up two or three-fold on a horizon of several years.
Gazprom plans to cut operating and capital investments by 20% y/y in 2020. e 20% reduc- tion in OpEx will be achieved with 17% lower export volumes, an improvement of working capital management e ciency, stock reduction and lower gas purchases in Russia.
The investment for the group is guided at RUB1.3 trillion ($17.6bn), cut by 20% y/y via shi ing some projects to future years.
“E orts to minimise the hit of price and vol- ume drop on EBITDA and FCF sound encour- aging, albeit the OpEx cut is largely a working capital release, while CapEx will be cut by fur- ther delaying projects, merely putting off the increase until the future,” BCS Global Markets commented on April 30.
VTB Capital (VTBC) on April 30 welcomed the management’s guidance, arguing that the
“cost savings targets represent a promising sign and, if realised, would be a positive development for the company’s long-term investment case.”
VTBC suggests, though, that the established targets are challenging, given that in addition to ‘defended’ lines there are cost lines that are nat- urally exempt from cost cutting (such as transit tari s and gas purchases), while also seeing the Capex reduction targets as “ambitious”.
Gazprom also con rmed no changes to the dividend policy – no less than 50% payout from adjusted net income in 2022, while pledging to make all e orts to avoid breaking the limit of 2.5x net debt to Ebitda, as in this case the company would need to cancel or lower dividends and might have to break debt covenants. Gazprom’s net debt/EBITDA amounted to 1.7x as of end- 2019, BCS GM reminds.
As reported by bne IntelliNews, after Tat- ne regional oil major and TMK pipe producer cancelled their guided dividends for 2020, ana- lysts feared that large state oil majors (Rosne , Gazprom Ne , Gazprom, Transne ) might fol- low suit, theoretically opting to use the right to postpone the FY19 dividend payout for several months.
VTBC analysts think the market will wel- come the company’s intention to adhere to its dividend policy, despite the challenging envi- ronment, but overall sees the guidance as neu- tral. Nevertheless, VTBC maintains a Buy call on Gazprom with a $2.8 12-month target price with 5% upside and 13% estimated total return.™
Week 18 06•May•2020 w w w . N E W S B A S E . c o m P11