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weakness to continue in 2Q20, given the record low oil price in April-May. Previously in April as Lukoil placed $1.5bn worth of Eurobonds, BCS GM reminded that Lukoil has the strongest credit metrics and highest ratings in Russia, with free cash flow in 2019 showing record-high numbers despite weak oil prices, while maintaining net leverage close to zero.
Following the publication of 1Q20 financial IFRS results, Russia's second-largest oil company ​Lukoil​ confirmed that the key focus is dividends, not the buyback, ​and provided no guidance on extending the share buyback in 2020. As reported by ​bne IntelliNews,​ despite a decline revenues, Lukoil managed to ​maintain a positive cash flow in turbulent 1Q20​. The ​investment case​ of one of the most valuable Russian oil and gas blue chips in 2019 was reinforced by the pledge to pay at least ​100% of cash flow in dividends​ and by launching of the ​second $3bn buyback programme​. The lack of clarity on extending the buyback is not supportive for share price performance, BCS Global Markets commented on June 5 following the conference call of the management. Overall, for 2Q20, Lukoil sees more positive outlook on upstream segment, while negative for refining and retail. Commenting on the Opec+ deal pressuring the output, Lukoil claimed that it will be able to restore output without significant problems, as soon as the deal will allow to do so. At the same for the company the cut does not impact high margin barrels, and their share in output will rise. Lukoil is also cutting the capital investment programme for 2020 from RUB550bn to RUB450bn-500bn, depending on the oil price and planning to transfer some projects into the future. Positive working capital release into cash flow is possible on existing crude oil inventories, and inventory revaluation may provide a positive impact on Ebitda and profit if oil continues to grow, BCS GM believes.
9.2.3​ Aviation corporate news
Aeroflot​ saw traffic plunge down 93.9% y/y in May, while the load factor decreased to 45.4%, sliding 31.6 pp y/y​. May should mark the nadir of the crisis for Aeroflot. The company pointed to a recovery in traffic and the load factor in June as the virus-related restrictions are eased. We see Pobeda as driving the recovery for the group domestically, as its discounter model is fit for the current situation in, which competition is set to pick up in the domestic market given the excess capacity available. Meanwhile, for the flagship Aeroflot airline, with its extensive international route network and significant share of transit passenger flows, the restart of international travel will be the key turning point.
Aeroflot​ is ready to part with ​Aurora​ Airlines, its easternmost subsidiary​, according to an exchange of communications between the group, which owns 51% of Aurora, and the administration of Sakhalin region, which holds the remaining 49%, Rusaviainsider.com ​informed​. Aurora, which was launched in 2013 with the notion to become the single airline operator for the vast far eastern territories of ​Russia​, has fallen short of its parent’s expectations. An exchange of letters between Aeroflot Group’s general director Vitaly Savelyev and Valery Limarenko, the governor of the Sakhalin region, suggests that Russia’s largest airline group is looking to spin off its regional subsidiary. “Having reviewed your proposal of selling the shares of Aurora Airlines, I hereby inform you that the administration of Sakhalin region is ready to start negotiations on this matter,” Limarenko wrote on May 13.
110​ RUSSIA Country Report​ July 2020 ​ ​www.intellinews.com