May
8
On April 30 Tatneft provided its financial report for 2008 by US GAAP. Having conducted analysis of the report we updated the model of the company introducing several changes to it.
Particularly, we lowered our forecast on oil and oil products distribution prices by 19.2% and 37% respectively. In the long-term period we expect the oil prices recovery up to current levels. That will be supported by recovery of industry in developed and emerging states, and also by the low investment activity of oil workers within crisis period on replacing old deposits with new ones.
We kept the target operating estimates without any changes. Capital investments of Tatneft were corrected 9.5% down mostly on behalf of the coming two years due to the economic crisis. However, Tatneft does not intend to refuse from investments to completion of refinery complex construction, which is expected to be launched in 2009. That is why the investments decrease is not as significant as with the other oil companies.
In our model of Tatneft we reflected the current forecast on macro-economic estimates of Russia and the world, and also the latest changes as the credit market, which affected the estimate of weighted average cost of capital of the company, and in the end affected its estimation.
We assume in 2009 the company might recover its operating margin on behalf of changes in the tax legislation, revision of export duties calculation, stabilization of oil prices, ruble devaluation and control over expenses. However, we also forecast appearance of another loss from exchange rates in 1Q, which will hold back the recovery of the net profit. However Tatneft gaining a large asset on processing will soon allow stabilizing income under the condition of volatile commodity market.
As a result of our corrections of Tatneft’s financial model we lowered the company’s fair value. Under our calculations, the fair price of company’s shares forms 3.72 USD for common shares and 2.79 USD for the preferred shares, which is lower than the estimates, forecasted earlier, by 36.5% and 6.9% respectively. Considering the current price level, the growth potential of shares totals 27.0% and 114.6% respectively. Due to that we confirm our recommendation BUY for the shares of the company.
Tatneft: Financial results of 2008 - May 08, 2009 (PDF)