Jul
22
Transneft: VSTO grows costly - July 21, 2008
Filed Under Bullet-moments |
On July 9th, Transneft published its IAS 2007 report, with results topping market’s expectations, though not finding reflection in dynamics of company’s quotes.
S Transneft’s net income of 2007 under IAS rose +17.9% above prior year (54.861 bn RUR) and formed 64.674 bn RUR.
Company’s sales of 2007 increased +9.6% versus similar results of 2006 and formed 221.942 bn RUR. The sales of 4Q 2007 has formed 57.393 bn RUR, or +14.4% over the similar term of 2006, when sales formed 50.151 bn RUR. Whereas we have expected that company will earn 219.750 bn RUR by year’s finals.
Operating costs increased its share in sales from 56.7% of 2006 to 61.3% of 2007. Amortization costs were the fastest growing expenditures, adding +38% during 2007, the costs for purchased oil rose +71.2%, electric power hiked 23.5%. Administrative costs also increased fast and formed 38.7y%, transport costs climbed +26.5%.
EBITDA, EBIT and net income margins are still rather high for a company of its sector, and results of 2007 have only demonstrated increase of these values. EBITDA of the year formed 56.5%, or +5.2% p.p. above the 2006, net income expanded by +29.1% or +2 p.p. exceeding past year. The growth of effectiveness was mostly formed not out of operating values, but through sale of oil surplus, which formed 15.97 bn RUR in 2007 (7% of sales).
We have corrected our model of Transneft, adding several changes to it. In particular – we have confirmed the forecast of Russia’s macroeconomic values for several next years. Our model now features reviewed company’s capital investments upwards at average of 7%. Mostly due to launch of VSTO’s first stage being delayed at late 2009 and expanded costs of project up to 30.5-31 bn USD. The corrections have also influenced Transneft’s operating costs, as latest report of Transneft indicates operating costs growing at a faster rate, above gross income, which leads to decrease of operations effectiveness in mid and long-term.
Resulting model revaluation and reflection of results off last financial report, brought a new fair price for preferred shares of Transneft, which formed 2,275 USD or -11.82% below the forecasted price of 2,580 USD. The current growth potential exceeds 93%. Therefore we confirm “BUY” recommendation on stocks of Transneft.
Transneft: VSTO grows costly - July 21, 2008 (PDF)