Page 102 - RusRPTDec18

current market price. Our unchanged 12-month Target Price of RUB 225,000 implies an ETR of 39%: Buy reiterated Revenues are in line... Domestic transportation volumes (+3.9% YoY) and revenues (+16.5% YoY) came in line with our expectations, while revenues from export deliveries were 3% below our forecast due to 2% lower crude export volumes being reported. Nevertheless, higher revenues from crude oil sales, which increased 60% YoY on oil price growth (or 5% above our estimate), and higher other revenues offset the difference. As a result, total revenues were reported at RUB 253bn (+15% YoY), in line with our forecast.
London-based LetterOne investment vehicle of Russian oligarch and owner of Alfa Group Mikhail Fridman will ask the Russian government's foreign investment commission to approve the merge of LetterOne’s German subsidiary DEA with German energy major Wintershall, Interfax reported on November 13 citing deputy chair of Wintershall Mario Meren. While the deal will not need approval of the Federal Antimonopoly Service (FAS) as it does not change L1's share on the Russian market, cross-ownership of foreign oil fields required government approval, according to Meren. Previously LetterOne confirmed a merger between Wintershall, the oil and gas asset of German BASF SE, and Dea Deutsche Erdoel, controlled by LetterOne's L1 Energy division. But, as uncertainty over businesses of Russian tycoons spiked after Oleg Deripaska and his publicly traded global majors Rusal and En+ were targeted by the US Treasury Department on April 6, investors were left guessing “who’s next.” As a 1990s vintage oligarch and one of the wealthiest men in Russia, Fridman’s name is almost certainly of the US shortlist. BASF reportedly will hold 67% in the joint venture and LetterOne 33%. The company is to be headquartered in Hamburg and Kassel and plans to IPO in the medium-term with an estimated valuation of circa €10bn. Fridman's Alfa was part of a consortium of Russian oligarchs AAR (Alfa Access Renova) that held a major share in the Russo-British oil joint venture TNK-BP that they sold to state-owned oil major Rosneft in March 2013 in a $55bn deal. Renova is the investment vehicle of Viktor Vekselberg, who was sanctioned along with Deripaska last week and is a close business associated of Fridman’s. Fridman took his share of the proceeds and set up LetterOne (aka L1) in London and since then has been trying to get back into the oil business, as well as making other profitable investments. After Vekselberg was also sanctioned by the US Treasury and added to the SDN List, Renova's Swiss assets and joint ventures where hit by selling of their stock and the ownership will be restructured.
Russia's sixth largest oil company Russneft of billionaire Mikhail Gutseriev could lose $260mn on a hedge against oil price decline it closed in September 2017 with VTB Bank and Promsvyazbank, Vedomosti daily said on November 1 citing Raiffeisenbank analysts. Reportedly the company hedged against a drop in oil prices for 2018-2020 and capped selling 10% of its extracted oil at $35 per barrel. In 2018 the hedge could cost RUB4bn ($64mn) and $260mn for 2018-2020 overall or 23% of the companies estimated free cash flow for three years.
Russia's second-largest oil producer and largest private oil company Lukoil boosted net profit by 54% year-on-year to RUB460bn ($7bn) in January-September 2018, with revenues up by 40% y/y to RUB5.9 trillion. Lukoil's capitalisation in autumn 2018 caught up with that of state hydrocarbon majors, after the company's new strategy, presented at an investors’ day in London on March 23, was met positively by analysts and investors. In the third quarter alone, the company posted record-high free cash flow (FCF) of $2.4bn (up from $2.2bn in the previous quarter), with EBITDA up by 3% q/q to $4.9bn.
102 RUSSIA Country Report December 2018 www.intellinews.com