Oct
2
On September 29th, Transneft published its financial results under IAS 1Q 2008 report, above market expected results, influencing company’s stocks.
Transneft’s net income over 1Q 2008 increased by 40.4% and formed 22.554 bn RUR against 1Q 2007 results (16.062 bn RUR), says company’s report. Net income of the company exceeded our expectations by 21%.
Over 1Q 2008 company’s revenue added +17.1% against 1Q 2007 results and formed 63.623 bn RUR. We expect that company’s income over year 2008 could form 69 bn RUR. A significant growth of net income and slight growth of company’s revenue demonstrates a growth of efficiency of operating results and proves a restrained growth of expenses over financial period.
EBITDA margin totaled 59.6% and exceeded last year results by 2.7 p.p., operating income margin formed 47.2% in comparison with 1Q 2007 results (43.9%). Net income of the company increased by 5.5 p.p. and reached 36.4%.
We have put some corrections in Transneft’s model. In particular, we have specified a forecast of macroeconomical indicators of Russia over next several years. We also put some corrections in growth of oil extraction rate of RF and Transneft’s product turnover as well. We decreased the forecast of oil extraction rate of Russia by 2.5% over 2008-2016. According to our forecasts, an average growth of extraction rate could form 1.3% vs 1.6% (prior forecasts). We also corrected Transneft’s operating expenses flow, due to merge with Transnefteproduct and a fall of sales volumes and resale crude oil in 1Q 2008. Regarding the last change we can say that a fall of resale crude oil also has a negative effect on company’s revenue over forecasted period and target price of the company, due to decreased investments in the company. It should be mentioned that our previous forecasts indicated higher results of Transnefteproduct’s revenue growth than over 1Q 2008 results.
In our model, we tried to reflect consequences of global financial system crisis towards Russian economy, leading to a growth of Transneft’s weighted average price from 12.9% to 13.4%, decreasing company’s estimation.
On the base of published results, we estimated a new fair price of Transneft’s preferred stocks, forming 1,988 USD vs prior estimation – 2.275 USD per share (-12.61%). Today a growth potential of company’s stocks exceeds 180%. We confirm “BUY” recommendation on Transneft’s securities.
Transneft: After merging with Transnefteproduct - October 2, 2008 (PDF)