May
20
We up-dated our model of NOVATEK. The output report of the company by IAS for 1Q 2008 was the reason for than.
Results for the first quarter totally turned out to better than we expected. So the net profit of NOVATEK (62 mn USD) did reduce by 79.9% in 1Q 2008, but still it has significantly exceeded our forecast. The results on operating profit and EBITDA have also exceeded our expectations. EBIT totaled 165 mn USD, EBITDA – 199 mn USD, reduction by 59.6% and 55.6% respectively. EBIT looks better than our forecasts by 24.5%, EBITDA – by 13.7%. The sales deviated by 2.5% down with our forecast.
Negative effect on the company’s estimates was provided by the reduction of selling prices of liquid hydrocarbons and ruble devaluation. The positive affect was made by the decrease of operating expenses (-27.2%), mostly due to drop of activity on trading operations on buying oil and gas. The lost volumes of gas purchase has been compensated by NOVATEK via building up its own extraction volumes (+7.9%), which affects positively on expenses to sales ration, and as follows, affects the profitability.
We also focus on the trends of recovering efficiency versus the fourth quarter. If the same conjuncture remains at the energy carriers’ market we forecast further growth of the financial estimates versus the end of 2008, thereby confirming the previous conclusion that the coming quarters are to be stable for NOVATEK.
In the model of the company we considered the results for 1Q 2009. Particularly we corrected the volume of the investment program for the current year from 1.163 bn USD to 624 mn USD. We have also included the trends on raw material extraction and its purchase on a side. We have reduced the sale price insignificantly for liquid hydrocarbons for the current year (-4%). Totally the made changes did not critically affect on estimation of NOVATEK. The forecast on other estimates remained the same.
We also intended to state our alarms on the matter of the possible revision towards reduction of gas tariffs indexation decrease by the Russian government for 2010-2012. Such variant is being developed in MEDT. According to our calculations, that will seriously correct the target financial estimates of NOVATEK, and will reduce the fundamental estimation of its shares. All the required changes in the model of the company will be included in the model after the new amendments to tariffs regulating are officially adopted.
After revision of NOVATEK model we assign the new fair value of the company’s shares, which formed 8.16 USD in stead of 8.35 USD, forecasted earlier (down by 2.3%). The new estimation in its turn provides for growth potential of 128%. Due to that we confirm the recommendation BUY for the shares of NOVATEK.
NOVATEK: First quarter of recovery - May 20, 2009 (PDF)