Gazprom Neft 3Q 20 - Strong FCF, with capex optimisation coming into sight

Today, Gazprom Neft reported 3Q 20 IFRS results, which turned out to be close to our estimates on net sales, while the latter came in slightly above the market expectations. Besides, the companys results exceeded both our forecast and the consensus on EBITDA. Specifically, stronger than expected EBITDA was backed mainly by lower than forecasted oil and oil products purchase prices as well as lower than projected transportation expenses in 3Q 20. In turn, the better than expected results on EBITDA brought about higher than anticipated net income vs both our and market estimates. No less important, Gazprom Nefts 3Q 20 net operating cash flow was unexpectedly strong propped up by significant positive effect from changes in WC of almost USD 0.5 bn. Moreover, we should also note that Gazprom Neft showed the first results of capex optimisation program, with 3Q 20 capital expenditures coming in below our estimates and reflecting an over 25% qoq reduction mainly through a cut in upstream capex (-39% qoq). Combined together, this resulted in companys FCF beating our expectations and turning back positive in 3Q 20. Overall, we treat the results as positive due to stronger than expected EBITDA and free cash flow.