Page 9 - FSUOGM Week 40 2019

FSUOGM INVESTMENT FSUOGM
Lukoil share buyback welcomed by analysts
RUSSIA
Lukoil’s shares have easily outperformed the RTS over the last two years.
THE announcement by Russia’s second-largest oil company Lukoil that it was re-launching a $3bn share buy back on October 2 was met pos- itively by analysts who expect the news to drive the company’s stock higher and further improve Lukoil’s investment case.
As reported by bne IntelliNews, after finish- ing its previous buyback programme of $3bn ahead of schedule in August 2019, Lukoil said it will continue to distribute extra cash to share- holders with another buyback of $3bn.
“The announcement is in line with our expec- tations and should be taken positively by the market, in our view. We expect it to be carried out at a pace similar to that of the first program, at circa $100mn per week,” Sberbank CIB com- mented on October 2.
Sberbank believes that counting for dividends and share buybacks, Lukoil could deliver a nor- malized total annual yield for shareholders of 11-12% (including a 5-6% dividend yield).
The bank’s estimates show that with current free cash flow projections, the company could buy back another $9bn of shares by the end of 2021.
“The extension is the key catalyst for the name – reflected in the market’s reaction,” BCS Global Markets commented on October 2, also suggest- ing that this buyback round is likely to end ahead
of schedule, which could provide extra yield for shareholders.”
Pushed by the buybacks and new strategy presented in March 2018, Lukoil’s capitalisa- tion caught up with that of state hydrocarbon majors in autumn 2018, despite lower output and reserves, as its share price almost doubled over the year.
The company is one of bne IntelliNews’ “King of the castle” names of most valuable stocks on the Russian market worth more than $50bn.
The shares of Lukoil also made it to the global top 10 of 2019 Value Creators Rankings by the Boston Consulting Group (BCG), earning inves- tors returns of 27.1% for the period of 2014 to 2018.
Year to date the stock has underperformed the RTS index as all the oil stocks have. The RTS was up 27.2% YTD as of the end of September, whereas the oil and gas sector was up 23% after gains made in recent weeks.
Lukoil’s shares have easily outperformed the RTS over the last two years as inves- tors adjusted to the company’s more inves- tor-friendly policies, however the rally in the name seems to have run its course and Lukoil shares are up by a still decent 18% YTD and 10% in the last 12 months, but behind the overall market. ™
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