Sep
23
Starting with this report we begin reviewing activities of Gazprom subsidiaries: Elektrogaz, Orgenergogaz, Centerenergogaz and Gazenergoservice. Companies that conduct over 90% of their work on behalf of Gazprom. This fact is explained by primary development stimulus of given enterprises – Gazprom provides a large orders volume and significant financial injections into the industry.
Oil Stocks
We think that in the upcoming future Russian market of oil services would rise at a fast pace. This trend is explained by following factors. First of all the companies of oil & gas industry have exhausted all the possiblities to expand extraction at low costs at previously developed deposits, encountering the need to compensate for growing rates of failing extraction with increased operating effectiveness. Aside from this – oil & gas companies started entering new oil & gas yielding regions, (such as Timano-Pechora, East Siberia and shelf zones), which on its part provoked an explosive growth of demand for oil services. Some additional stimulus for development of industry is the fact that in past 15 years oil service companies have lost a significant part of their production potential, and now require total modernization. Age for 72% of all oil extracting equipment forms from 10 to 20 years. The further development of oil & gas extraction is impossible without significant financial investments into corresponding industries. Mentioned issues thus indicate active development of oil services in future.
Domestic companies are traded through a significant discount versus their foreign counterparts. In this review we have conducted comparison of P/S, EV/S, EV/EBITDA, P/E and P/BV multipliers of Electrogaz, Orgenergogaz, Centerenergogaz and Gazenergoservice with weighted average values of companies off developed and emerging markets. The resulting comparison indicates that Russian companies hold a serious growth potential. The sole exception is Centerenergogaz, which capitalization rose highly since Gazprom announced a formation of service holding at the base of the company.
We have conducted estimation of the company using DCF method. Based upon these results fundamental price of companies considerably exceeds market quotes. Therefore we recommend “BUY” on common and preferred stocks of Electrogaz, Orgenergogaz, Centerenergogaz and “ACCUMULATE” on stocks of Gazenergoservice.
Oil service companies: Helping Gazprom - September 23, 2008 (PDF Oil Stock Market)
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