LUKoil 2Q 20 - Interim DPS is expectedly weak and accounts for RUB 46
Today, LUKoil released its 2Q 2020 results, with revenue being in line with our projections, but weaker than consensus due to a qoq drop in the companys trading activity. Besides, LUKoils EBITDA was slightly above both our and market estimates, which we believe is due to lower than expected losses from hedging of trading, which resulted in a lower cost of purchases. However, contrary to market expectations, net profit remained negative in 2Q 20 due to impairment losses of over USD 0.5 bn related to Uzbekistan assets. This non-cash loss, however, should not affect LUKoils dividends, which are derived from its free cash flow. Notably, the companys FCF (before interest) in 2Q 20 came in at USD 353 mn, which is higher than our estimates due to stronger than expected NOCF. At the same time, LUKoils FCF (after interest and lease) in 2Q 20 came in slightly below our forecasts because of higher than projected lease payments. Overall, the companys FCF (after interest and lease) in 1H 20 accounted for USD 458 mn, which should translate into interim DPS of RUB 46 being close to our forecast of RUB 50. We treat the results as neutral for the stock.PJSC Lukoil is a vertically-integrated oil company engaged in the exploration and production of crude oil and natural gas. Co. is engaged in all main sectors of the modern oil business including supplies, refining, marketing, transportation, petrochemicals and oil-related activities. Co.'s operations are divided into five business segments: Exploration and Production; Refining, Marketing and Distribution; Chemicals; Power Generation and Other Business Segments. Co. owns and operates refineries in Bulgaria (LUKOIL Neftochim Bourgas AD) and Romania (Petrotel-LUKOIL).
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