Page 185 - RusRPTApr23

Earnings rising on macro assumptions. Our 2022e net income forecast jumps c$4bn on the FX effect of the late-December swoon of the ruble, while our 2023e and 2024e estimates rise on weaker ruble and higher oil realization assumptions. The Street appears not to have made the 2022e ruble adjustment yet, and we are substantially higher than consensus on both 2023e and 2024e.
TPs up, pref upgraded. BCS SNGS/SNGSp TPs rise 16%/25% to Rb22/40/sh on higher S-T oil realizations and a weaker ruble. With Excess Returns of -25%/+18%, we maintain SNGS at SELL but upgrade SNGSp to BUY. Our forecasts for 2022e DYs are c4%/13%, emphasizing the pref’s relative value.
● Tatneft
Tatneft the only company to report IFRS: One key takeaway from Tatneft’s IFRS numbers is that the company was surprisingly profitable in 2022. We think there may be a read-across to the rest of the industry, much as we had begun to explore this theme in a recent note (Tax ‘hikes’, record drilling, and production cuts in context). A basic idea of that report is that it is becoming increasingly apparent that Russian oil companies’ actual realized oil prices may be well above quoted Urals prices. While we need more data points to prove up this thesis (Rosneft may report headline IFRS results for 2022 in the near future), Tatneft’s surprisingly strong net income under IFRS provides a significant confirmation of it. A second key takeaway from Tatneft’s IFRS results is...that they were published at all. With all of its peers producing at most near-meaningless RAS results or a smattering of headline IFRS numbers in a press release, Tatneft stands out as the only Russian oil & gas company still reporting full IFRS results (although it is not producing the traditional MD&A report and its operational data). This market-leading transparency is a mark in favor of TATN and TATNp for investors.
BCS raise the TP on oil producer Tatneft’s ord and pref shares by 33%/39% to Rb610/570/sh and upgrade both from HOLD to BUY. Tatneft generates good dividends and has substantial production growth potential, although the latter is currently constrained by external factors.
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. We 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.
New 2030 Strategy reiterates L-T growth story. Tatneft’s BoD approved a new 2030 Strategy last September, boosting L-T oil production targets 5% to 810kbd, well above its highest post-Soviet output (585kbd in 2019). The M-T
185 RUSSIA Country Report Russia April 2023 www.intellinews.com