Page 183 - RusRPTApr23

Higher dividends, improved 2023e outlook. Our 2022e DPS improvement is mostly on an improved estimate of actual realizations vs posted Urals prices, while our 2023e payout rises on the ISAB sale and higher production estimates. As compared to the Street, we are slightly pessimistic in 2022e and 2023e, but optimistic in 2024e. Rising dividend expectations boost TP. Our LKOH TP rises 42% to Rb6,100/sh, mostly on higher dividend forecasts boosting our DDM valuation. We upgrade the stock from HOLD to BUY on an Excess Return of 25%. Our FY2023 dividend forecast is Rb505/sh for a DY of c12%
● Gazprom Neft
BCS increase its TP on oil producer Gazprom Neft (SIBN) 36% to Rb640/sh and upgrade it to BUY. The interim dividend signaled above average earnings, and BCS think parent Gazprom may require higher payouts, boosting the TP.
Cautiously optimistic on S-T outlook for Russian oil business. EU and G7 embargoes and price caps have not been as negative as we feared, and tax changes, a production cut, and growing shadow fleet may compress Urals discounts noticeably. BCS still expect output and the Urals discount to recover to November 2022 levels by end-2023, and regain near pre-crisis levels in the L-T.
Strong 9M22 dividend indicates high earning potential. Gazprom Neft’s 9M22 record interim dividend of Rb69.8/sh implies net income of c$9.2bn for 1Q22-3Q22, above the record $6.8bn of the full year of 2021.
L-T growth story in place. Gazprom Neft’s has a number of production growth projects (the Zima project, the oil rims of parent Gazprom’s super-giant gas fields, and others). Medium-term barriers to achieving this growth is external (oil embargoes, OPEC+ constraints), not field-level capacity.
Dividend upside. We think parent Gazprom, faced with lower European export revenues, may require Gazprom Neft to pay out more than the 50% of net income demanded by its dividend policy. We boost our L-T dividend assumption to 75%, boosting our DDM-based Target Price by Rb120/sh.
Unsustainably high earnings, no reporting. Gazprom Neft has released no IFRS accounts or operating data since the start of the Ukraine crisis. We assume the record-high 2022e earnings are due to oil realizations being well above quoted Urals prices, implying the earnings boost is temporary.
Higher sanctions risks. Gazprom Neft’s status as the daughter of Russia’s state-owned gas champion means efforts to enforce the EU oil and product embargoes and the EU/US price ceiling may fall disproportionately on it.
183 RUSSIA Country Report Russia April 2023 www.intellinews.com