Page 10 - BNE_magazine_12_2019 dec19

10 I Companies & Markets bne December 2019
Shares of Russian oil dinosaur Surgut
soar in mystery rally
bne IntelliNews
The shares of Russia's fourth largest oil producer Surgutneftegas (Surgut) leaped by a third (31%) in value between October 23 and October 25 and set a new all time high price record of RUB48 ($0.75), with no apparent catalysts or news flow.
This is the second big jump up in the stock’s value this year. As reported by bne IntelliNews, in September the stock jumped some 20% shares as speculators piled into the name on reports that the oil "dinosaur" known for its ultra-conservative financial policies may unseal its notorious $50bn cash pile, which is almost as much as Russia’s sovereign reserves.
Analysts surveyed by RBC business portal and Kommersant daily were scratching their heads as they saw no apparent reason for the last weeks second rally in Surgut shares.
According to unconfirmed reports, the company previously announced the creation of a subsidiary, Rion, to invest in and manage securities. By the end of 1H19, Surgut's cash pile had reached more than RUB3.25 trillion ($50.9bn), which is 2.4- fold more than the entire company’s market capitalisation. The cash the company holds is being discounted by 50 cents on the dollar as investors believe the management will never share these funds with shareholders.
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Surgut famously bases its operations on rubles, and its investment case has been losing its dividend appeal owing to the ruble's appreciation and Russia's tight fiscal policy. In effect the way the company’s dividends are calculated mean its preferred shares are a hedge against the fall of the ruble against the dollar, as if the ruble falls in value the company’s
“Surgut famously bases its operations on rubles, and its investment case has been losing its dividend appeal owing to the ruble's appreciation”
dividend payout goes up in proportion. However, any move that potentially gives investors access to the $50bn cash pile would vastly improve the interest in the name.
In 2018 the company made more profit from its enormous cash pile than it did from producing oil. One theory
for the recent spike in share value, suggested by The Bell, is that a merger of Surgut with privately-owned LUKoil, the country’s second biggest oil company, is in the offing.