RDV Russian Stocks

#NVTK
NOVATEK WILL GET OUT OF THE CRISIS AS A WINNER.

The coronavirus and an oil slump have solidified the position of gas as a main fuel. A top pick in the global gas sector is currently Novatek. Novatek ranks second in terms of reserves worldwide, it boasts of low production costs and has no debt. The gas producer is turning into a dividend stock.

The crisis will solidify the status of gas as a key fuel over the next 20-30 years. The virus crisis has substantially postponed the threat of green energy as it becomes economically unjustified given current oil and gas prices. It will also be difficult for the states to find money for alternative energy when rescuing the economy after the quarantine.
• Novatek is the world’s second-biggest gas company in terms of reserves, trailing Gazprom.

Unlike global O&G companies, Novatek could remain operational for a long time even if oil trades at USD 5.00/bbl. Novatek’s net debt is next to zero and the company is the least indebted LNG producer in the world. This means that Novatek’s gas supplies will cover entire Europe and Asia when the global economy and gas prices start rebounding.

Today Novatek’s board of directors recommended RUB 18.10 per share as final dividend for 2019. Expanding Novatek has never been a dividend stock, and now is expected to return 5.5% in 2020. This is not small for the growing company. Novatek pays out dividend, while US LNG producers are deeply in debt (5-10x of EBITDA).

The gas producer’s owners and the company itself buy Novatek shares every day because now is a good time to buy into the company that holds the second biggest natural gas reserves worldwide.

@AK47eng

#GAZP #NVTK
RUBLE DEVALUATION: GAS PRODUCERS WILL BENEFIT.

Ruble depreciation is good for exporters. Main exporters in Russia are O&G companies. The dollar already buys RUB 81.00 compared to RUB 61.00 and RUB 68.00 just a couple of months ago.

If USD/RUB drops by RUB 5.00, gas producers will benefit as follows:
Gazprom: EBITDA jumps +4%, net profit climbs +10% and dividend climbs +25%
Novatek’s net profit will rise over 10% and dividend will remain unchanged. The guaranteed dividend is RUB 40.80, record dividend yield of 5.5% for the growing LNG giant.

Ruble devaluation is a natural hedging instrument for gas producers against a decline in O&G prices. Gas producers will benefit the most, the weaker ruble the better. On March 18 RDV sources said why RUB 100.00 per dollar is a right decision and who will benefit from this.

@AK47eng

#NVTK
NOVATEK WILL GET THROUGH THE CRISIS AND EVEN GAIN THE UPPER HAND.

Novatek (MOEX: NVTK) is defensive business that is ready to operate in difficult market conditions. The gas producer holds a decent cash cushion, the immunity to ruble devaluation and low production costs.

A strong balance sheet. This will help the company weather any crisis. Novatek covers 90% of debt by cash:
• RUB 137 bln in cash and deposit accounts
• A RUB 152 bln credit facility (RUB 140 bln in long-term obligations and RUB 12 bln in short-term obligations)

The company’s gas business is defensive. Novatek sells 84% of all gas it pumps domestically at the tariff, or half of revenue.

The company’s export operations will benefit from a weaker ruble. Ruble depreciation will offset a decline in oil prices.

The company boasts of low production costs (USD 4.60 per BOE (lifting costs + taxes + amortization). This will allow the company to produce gas and oil in any market conditions.

Novatek is a top pick to log the highest gains during a rebound. The ongoing virus crisis favors the gas producer in the long term.

@AK47eng

#GAZP
GAZPROM: THE INTRINSIC VALUE IS AT LEAST RUB 240.00.

Gazprom (MOEX: GAZP) is substantially undervalued by the market. If adjusted to inflation, Gazprom shares currently trade below the levels seen in 2008. Meanwhile, even higher gas exports, not to mention positive corporate events, are not taken into account.

At 2008 prices Gazprom shares are currently worth RUB 74.40, or lower than the 2008 low (RUB 87.90). Gazprom’s current share price is RUB 170.00. Gazprom shares traded on average at RUB 250.80 in 2008.

Given an increase in gas exports, Gazprom’s fair value is at least RUB 240.00. To remind, Gazprom has boosted gas exports by 30% since 2008. The inflation-adjusted lowest price of Gazprom shares should be RUB 115.20, and the average price is roughly RUB 328.60 at 2008 prices.

Gazprom holds upside of 35.4% to the adjusted low and 77.4% to the adjusted average price of 2008.

@AK47eng

Macroeconomics
• As of today Russia suspends flights to all countries, except for air flights from Moscow to some capitals.
• The median forecast for global GDP growth in 2020 is 1.6%. The IMF thinks GDP growth below 2.5% is a global recession. For this reason, if real GDP growth is close to the forecast, a global recession will get under way this year.
• The US Senate refused to pass a USD 2 tln economic support package.
• On March 21, 2020 the number of tables reserved in restaurants and cafes in the US crashed by 100% against the year-earlier date. Americans stopped visiting public places.

Yesterday’s developments
• SUEK CEO Vladimir Rashevsky will enter Alrosa’s Supervisory Board as the state’s representative.
• Leonid Mikhelson sold Novatek shares worth EUR 4.6 mln under a repurchase transaction.
• The Moscow Exchange does not plan to halt trading in any of its markets.
• Russian Platinum pulled out of a JV with Nornickel.
• The coronavirus forced Aeroflot to suspend flights to seven other countries.

Events to watch out for today
• Aeroflot: an investor meeting in London.
• M.Video: a BoD meeting to approve annual financials.
• MGTS: a BoD meeting to review the corporate budget execution.

@AK47eng

#numbers
PERFORMANCE OF MAJOR RUSSIAN STOCKS SINCE THE CORONAVIRUS OUTBREAK. Changes in stock prices (in USD) from January 17 through March 20, 2020.

Mechel prefs (-61.2%)
Surgutneftegas (-60.3%)
Mechel (-55.6%)
Aeroflot (-55%)
Rosneft (-54.5%)
Rusal (-53.3%)
LSR Group (-53.2%)
Evraz (-52.5%)
Gazpromneft (-52.4%)
Tatneft prefs (-52.1%)
Veon (-51.5%)
Alrosa (-51.4%)
Tatneft (-51.1%)
QIWI (-50.7%)
Rosseti (-50.4%)
Novatek (-49.9%)
Bashneft prefs (-49.6%)
VTB Bank (-48.4%)
TGK-1 (-48.2%)
Lukoil (-48%)
TCS Group (-47.7%)
FGC UES (-47.5%)
Mosenergo (-46.2%)
TMK (-45.9%)
Gazprom (-45.2%)
IRGC of Center (-44.5%)
Bashneft (-44.5%)
MMK (-43.5%)
Mail.ru (-42.8%)
Rostelecom prefs (-42.4%)
VSMPO-Avisma (-42.3%)
NLMK (-41.9%)
Sberbank (-41.6%)
EN+ (-41.4%)
Transneft (-41.3%)
Rusagro (-40.2%)
Nornickel (-40.1%)
Sberbank prefs (-39.7%)
Enel Russia (-39.1%)
Detskiy Mir (-39.1%)
Inter RAO (-38.9%)
Raspadskaya (-38.5%)
M.Video (-38.4%)
AFK Sistema (-38.1%)
Rostelecom (-37.9%)
Moscow Exchange (-37.4%)
NKNCP (-37.4%)
Lenta (-37.4%)
Unipro (-36.7%)
RusHydro (-36.7%)
NMTP (-35.6%)
Severstal (-35.2%)
Magnit (-35.2%)
Etalon (-34.9%)
OGK-2 (-33.3%)
MTS (-33%)
Lenenergo (-32.9%)
Yandex (-31.4%)
X5 Retail Group (-29.5%)
Safmar (-27.5%)
PIK (-27.1%)
Phosagro (-26.5%)
Surgutneftegas prefs (-25.2%)
Polymetall (-17.9%)
Polyus (-12.3%)
Akron (-1.0%)
TGK-2 +7.4%)

@AK47eng

🦠 THE ACUTE PHASE OF THE CORONAVIRUS IS OVER: MARKETS READY TO REBOUND

Index futures and options will expire in the US today. Traders who were hard hit by a slump in equities will post a loss as it is politically dangerous to drag down the market any further.

Today is a quadruple witching day in the US, with index futures, index options and futures and options on separate stocks expiring at one and the same time.

March has become a month of a margin call, with the slump catching many hedge funds by surprise. Now angry market participants are moving them to the expiration in order to exit position at low prices. Today this plan will be executed and later one can talk to the downside.

It is no longer interesting for investors to push down equities as careless rich men have already been robbed. On top of this, it is politically dangerous to drag down the market. Trump needs to protect the securities market that slid to the levels seen when he took office. Stocks for Americans are like oil and the ruble for Russians, with half of Americans being shareholders. Trump will do protect the stock market.

After margin calls are covered and losses are posted, the market will start rebounding.

@AK47eng

#NVTK
NOVATEK IS ONE OF THE MOST INTERESTING STOCKS FOR A REBOUND.

Novatek (MOEX: NVTK) looks set to log solid gains in a rebound. Novatek shares unjustifiably tracked crude lower, but oil does not impact much the exporter’s revenue compared with a weaker ruble. Novatek stocks tend to rebound quickly after declines, and now they are also supported by the share buyback program.

Novatek does not depend much on oil prices. Novatek shares came nearly 40% off the highs at the beginning of the year, like oil producers. Meanwhile, Novatek is roughly 30% dependent on oil. At present, Novatek’s market value consists of domestic gas sales at fixed prices and future LNG projects. As regards potential LNG projects, like Arctic LNG-2, there are plans not to peg them to oil prices.

Novatek benefits from ruble depreciation. LNG prices have not fallen since the coronavirus outbreak in dollars, while the ruble has declined sharply.

Novatek keeps share prices by the share buyback program. The gas producer started buying back shares from RUB 1,100.00 per share and keeps on doing this. Novatek CEO Leonid Mikhelson himself also buys back the shares.

Novatek is a growth company that has unjustifiably been hit by a selloff with other O&G companies. Historically, Novatek saw mild losses at times of pullbacks and was fast to rebound. Novatek’s rebound is likely to be swift and steep.

@AK47eng

#GAZP #NVTK
GAZPROM AND NOVATEK WILL RIDE THE REBOUND IN THE RUSSIAN STOCK MARKET

Russian gas producers will recover faster than other companies after the slump. Gas demand is immune to the coronavirus, while Gazprom (MOEX: GAZP) and Novatek (MOEX: NVTK) have a defensive domestic market. Insiders have already bought the stocks ahead of a rebound.

The Covid-19 pandemic does not impact gas. The gas market is much less sensitive to the situation surrounding the virus than the oil market (gas prices in Europe are on the rise in rubles). The reason is simple. Gas is not virtually used in the transport sector and is used less in the industries quarantined.

Russian gas producers are protected by the domestic market. Domestic market prices are fixed, and gas consumption via heating and cooking will not drop because of the quarantine.

Insiders have been buying stocks. In a recent interview Leonid Mikhelson noted (https://tass.ru/ekonomika/7947323) that the gas market had already reached the bottom prior to the pandemic, and the impact of the virus on the gas market is expected to be temporary. To confirm his words he started buying large amounts of Novatek shares. During the crisis days Gazprom outperformed the broader market.

Gas output is a sector that recovers faster than others from the slump. At times of market-wide slumps virtually all stocks slide, but only those sectors which are the least sensitive to the problem will recover quickly.

@AK47eng

#GAZP #NVTK
GAZPROM AND NOVATEK WILL RIDE THE REBOUND IN THE RUSSIAN STOCK MARKET

In the current conditions, shares of Gazprom (MOEX: GAZP (https://putinomics.ru/ru/issuer/15/)) and Novatek (MOEX: NVTK (https://putinomics.ru/ru/issuer/30/)) will rebound faster than others. Both companies are undervalued and shareholder-backed, maintain strong balance sheets, hold the largest gas reserves in the world and pay out generous dividend.

Novatek has always ridden rebounds, while Gazprom is unfairly oversold. Novatek recovered quicker than the market in both 2008 and 2016. Gazprom, in turn, operates the most protected business among exporters and has undergone revolutionary corporate changes, while the stock declined like other plays. This is unfair, Gazprom should bounce back.

Both Gazprom and Novatek have shareholders who are currently interested in higher prices. Both companies execute share buyback programs (Novatek in public, Gazprom or its shareholders in secret).

Both Gazprom and Novatek maintain strong balance sheets, they will survive all rivals under any market circumstances. Meanwhile, both companies are protected against external shocks via a weak ruble and domestic gas sales.

Gas prices have reached the bottom, and are set to jump off this level. Low gas prices ousted US LNG producers and green projects from the market. Gas is solidifying positions as a main type of fuel in the world over the next 20-30 years. Gazprom and Novatek are global leaders in terms of gas reserves.

Current prices are a good time to buy into the global leaders.
• After all corporate changes Gazprom is worth just 3x on P/E, which puts dividend yield at 15-16% if 50% is paid out in dividend.
• Novatek shares declined to the levels that even this growth story has also become a dividend stock.

@AK47eng

🦠 THE ACUTE PHASE OF THE CORONAVIRUS IS OVER: MARKETS READY TO REBOUND

The oil market is stabilizing and crude prices will increase to USD 35-40/bbl, the optimum price level in the current conditions. High-cost oil producers are leaving the market, and the US is taking measures to support oil. Hysteria of market participants is fading.

High-cost oil producers are facing difficulties and cutting output. Actions taken by Russia and Saudi Arabia weighed on other countries that will lead to lower production now and in the long term:
• The Norwegian krone took a harder hit than the ruble, which prompted the central bank to cut the key rate.
• Given current oil prices Canadian oil producers are pumping crude at a loss.
• Texas shale oil producers asked Trump to take support measures as he pledged to do this during his presidential campaign.

Oil producers across the globe are cutting investment. Trump and Texas unexpectedly decided to support crude oil. Texas stands ready to reduce output in a coordinated action. The US leader mulls pressuring Russia and Saudi Arabia, including via sanctions.

The panic has reached a crescendo in the financial oil market, showing potential for a rebound. Analysts talk about an oil slump to USD 5/bbl and even negative oil prices, although two months ago they expected a surge to USD 70/bbl. There is nobody to sell further when everybody are already confident about the worst possible scenario and launched short positions. The spring is being squeezed.

In the short term oil could start rising up to USD 40/bbl. The panic is abating, global production is in decline. All these factors will shore up crude prices.

@AK47eng

🦠 THE ACUTE PHASE OF THE CORONAVIRUS IS OVER: MARKETS READY TO REBOUND

The panic sparked by the coronavirus is close to the end as the acute phase in the markets is over. Markets are now ready to bounce back.

To create panic around the virus was beneficial for several groups:
• for Democrats in the US to hit Trump.
• for the Silicon Valley to let digital penetrate deeper into the society.
• for China as the Chinese have already recovered, and to pinch Trump and show the whole world that they are better in overcoming crises, they find it advantageous.
• for many European politicians to show their commitment to taking care of the public.
• for Russia to dampen shale oil output and LNG.

However, the panic surrounding the pandemic seems to be coming to a close. Trump needs to protect the stock market that slumped to the levels seen when he took office (50% of Americans hold securities, stock prices are something of a benchmark for them like the dollar’s exchange rate for Russians). Many countries have already introduced the quarantine, analysts expect GDP to slide, although a month ago everybody shrugged off this problem. Now neglect turned into demonization. Stock prices are already a sign of a global depression, implying the end of the panic.

https://t.me/zorkosmartcap/30

@AK47eng

#DSKY
DETSKIY MIR: LOSSES WILL TOTAL RUB 2.6 BLN IN 2020 – BASELINE SCENARIO. The target price is RUB 60.00, downside of 35%.

Under the baseline scenario, Detskiy Mir (MOEX: DSKY) will report a loss of RUB 2.6 bln in 2020. The pessimistic scenario projects a loss of nearly RUB 9 bln, while the optimistic scenario suggests RUB 1.9 bln profit, putting dividend yield at 2.5% to the current stock price. A RDV source shared Detskiy Mir’s financial model.

• The pessimistic scenario is a RUB 9 bln loss. The scenario envisages the retailer’s store traffic to remain at the current level (-30% vs. the previous year), dragging down sales by 20% y-o-y. The ruble will come off the current levels to RUB 80+ per dollar.

• The baseline scenario is a RUB 2.6 bln loss. It suggests that store traffic should recover in August (before September 1) and the ruble should firm from the current positions to RUB 75-80 per dollar. Under this scenario, Detskiy Mir will refrain from paying out dividend for 2020.

• The optimistic scenario is a RUB 1.9 bln profit. It assumes that store traffic should fully recover by July and the ruble to strengthen to RUB 70-75 per dollar. Under this scenario, profit will slide 3 (!) times and dividend yield will not exceed 2.5% to the current price. This is a small number as, for instance, Unipro (MOEX: UPRO) will return 12.7% for 2020.

@AK47eng

Macroeconomics
• The Bank of Russia will hold a monetary policy meeting today. 36 out of 37 analysts, according to Bloomberg, expect the key rate to be left at 6%.
• Russia’s reserves will be enough to execute social obligations within 6 years even if oil trades low – Anton Siluanov.
• The White House mulls issuing 25- and 50-year bond to finance a USD 1.3 tln stimulus package.

Yesterday’s developments
• RDIF, RUIE, Yandex and Mail.ru set up an alliance to fight against the coronavirus.
• The Moscow Exchange registered record average daily trading volumes in March.
• Mechel confirmed plans to sell its entire stake in the Elga coking coal field to repay debt.

Events to watch out for today
• Raspadskaya: FY19 IFRS financial statement.
• Russia: the Bank of Russia’s key rate decision (13:30 Moscow time).
• Japan: Vernal Equinox Day, public holiday.

@AK47eng