Gazprom raised to BUY, TP RUB 260 - FCF stays positive thanks to optimisation in capex and opex

We see current levels as attractive for entering the stock, as we believe Gazprom could partly compensate decline in prices with a cut in both capex and operating expenses. We believe that Gazproms 2020e free cash flow could remain positive (USD 1.5 bn yielding 3%) even under low export gas prices. The completion of investments in large transportation projects in 2019e and a cut in other capex could lead to a decline in Gazproms capital expenditures by USD 8.4 bn in 2020e. Moreover, the start of opex optimisation program in 2020e should support companys EBITDA, which in our estimates could benefit about USD 800 mn per year in 2020e-22e from the decrease in operating expenses. We also expect that Gazprom will be able to provide relatively high dividend payments thanks to an increase in payout ratio. We estimate 2019e DPS at RUB 14.8/share (DY 9%), with a decline to RUB 12.4/share (DY 7.5%) for 2020e and a rebound to RUB 17.1/share (DY 10%) for 2021e. We believe that Gazproms dividend policy is secured and will not be revised even with a drop in prices, as the debt burden of the company should remain below 2.5x of Net Debt/EBITDA (the level that triggers a revision of payouts according to the policy). Overall, we have revised our recommendation upwards to BUY from HOLD, with lower DCF-based target price for ADR at USD 6.8 (from USD 7.4), while increasing the target price for local shares to RUB 260 (from RUB 240) due to RUB depreciation.