Russneft confirmed at SELL, TP RUB 360 - New liabilities and low oil prices make things worse

We stick to our SELL recommendation for Russnefts ordinaries given piling problems: high sensitivity to the oil price fall, pending debt and preferred dividend payments not covered by FCF, vague loans to affiliated companies (ca. EUR 200 mn in 2019), guarantees to third parties (EUR 267 mn) and a preferreds buyback at a high price (in the form of a new forward contract with VTB). This pending buyback of a third of the preferreds from VTB in 2026e implies a 40% premium to the current ordinary share price (RUB 21 bn in total, which might be hedged in USD), which is negative for ordinaries. Given all that, Fitch has even downgraded the companys credit rating to the weak CCC+, citing poor corporate governance and low liquidity. Incl. prepayments from Glencore and forward liabilities, ND/EBITDA stood at 3x at end-19, yet it could more than double this year due to the oil price drop, with FCF unlikely to be positive even with capex cuts. We deem the currently 2x premium on EV/EBITDA 20e (8.8x) to peers as unreasonable and remain negative on ordinaries, reducing our DCF TP to RUB 360/share (RUB 490/share), mostly on lower oil prices.