Novatek confirmed at BUY, TP RUB 1,500 - LNG stays profitable, while domestic sales keep profits high

We confirm our BUY recommendation for the stock, as we believe that Novatek is well prepared for the current market environment of low natural gas and crude oil prices since the company has a net cash position and one of the lowest lifting costs in the industry. We expect that with the cut in oil output under the new OPEC+ deal, Novateks EBITDA in 2020e-22e will be driven mainly by sustainable domestic gas sales as well as an increase in gas condensate production, propped up by the launch of the North-Russkoye cluster. Particularly, we estimate that over the next three years, Novatek will increase its consolidated gas output by 15% to 45 bcm, while consolidated liquids production could grow by 10% to 7.1 mn tonnes, pushing its EBITDA (excl. affiliates) to USD 4.5 bn in 2022e. Besides, we also believe that in spite of potential delays in commissioning of new LNG projects, Novatek will stick to the strategy of ramping up its LNG capacities, with Arctic LNG 2 and Obskiy LNG as the next projects to come on line after 2023e. Moreover, we estimate that Novateks current LNG project, Yamal LNG, should remain profitable even under currently weak LNG prices thanks to the low operating costs of the project (USD 1.5/mbtu for sales in Europe). Overall, we have confirmed our BUY recommendation for both DRs and local shares, but decreased DCF-based TPs for DRs and local shares to USD 205 (from USD 250) and RUB 1,500 (from RUB 1,600).