Mar
10
We revised our estimation of Gazprom’s shares. 9 months 2008 IAS report, new conjuncture and economic forecasts, and also the expectations for the coming year, expressed by monopoly’s management, were good reason for updating the company’s model.
Gazprom Stock
Considering the 9 months 2008 report we indicate 55% upping of gas monopoly’s sales to 2,573 bn RUR versus similar period last year. Net profit increased by 65.5% to 705.41 bn RUR, EBITDA climbed by 84.3% to 816.4 bn RUR. That provides totally secure all-time high financial estimates. But things are not that safe in gas monopoly as it might seem from the first sight. If comparing 3Q 2008 to 2Q 2008, the sales reduction can be indicated under the conditions of continuing operational expenses growth, which in its turn has decreased the company’s operational profit by 12.8%. That is while gas prices climbed in Europe. The main reason of sales reduction hides in gas demand dropping on behalf of the consumers, along with oil and gas condensate prices decrease and the seasonal factors. As for the operational expenses, they grew following the purchased oil and gas, and also the repair and exploitation expenses.
3Q 2008 financial results provided by the company and the trends of the oil-and-gas sector and the whole economy in 4Q 2008 allow forecasting that late last year was complicated for Gazprom profit upping is not to be expected in 4Q 2008. We assume company’s 4Q 2008 sales and profit will not exceed similar estimates of the previous year and 3Q 2008.
Our revision down of gas and oil realization prices in the forecasted period should be indicated in our Gazprom’s model corrections. So, we reduced the forecast of oil prices by 10.4%, assuming that economies of the developed countries will not recover fast, and that will hold back climbing of energy carriers demand. More to that, American currency strengthening allows speaking about the adequacy of the current and forecasted price levels to expenses, required for introduction of new deposits. Following the oil price down, gas prices do also drop in far abroad and CIS states. Our model provides 11.5% reduction of forecasted gas prices in Europe, in 2009 – by 31.7%.
We revised Gazprom’s gas extraction volumes within the coming years in our model. Due to demand decrease the monopoly will have to reduce extraction by 7.4% in 2009, by 2.1% in 2010 and by 0.5% in 2011 – to 2008 levels. The statistics that came out lately proves that. And only after 2011 Gazprom will be able to get back to gradual growth, indicated in the plans of the company.
We have also revised the volume of capital investments in our model, having reduced them by 2.2% in the forecasted period mostly due to 2009 investments forecast revision from 920 bn RUR to 750 bn RUR. The given decline of investment program is currently being negotiated in government cabinets.
Due to the corrections of the model, the new fair value of Gazprom’s shares totaled 10 USD versus 12.36 USD, forecasted earlier (19.1% down). But due to the significant growth potential, totaling more than 200%, we confirm our recommendation “BUY” for the shares of the company.
Gazprom: Demand reduction in price drop expectations - March 10, 2009 (PDF)