LUKoil 3Q 20 - Strong free cash flow facilitating DPS improvement
Today, LUKoil reported its 3Q 2020 results, which beat both our and market estimates on revenue, EBITDA and net income. As compared to our projections, revenue came in stronger due to higher than expected trading activity backed by higher crude oil and oil products purchases. On EBITDA level, LUKoils results exceeded our forecast on lower than projected transportation and SG&A expenses. As a result, the companys 3Q 20 net income also came in above our estimates. More importantly, NOCF was significantly stronger than expected thanks to higher EBITDA and a support from changes in WC (USD 358 mn). Besides, the companys capex came in lower than expected, additionally pushing its free cash flow ahead of our estimates. In turn, this resulted in LUKoils 3Q 20 FCF (after interest and lease) coming in above our forecast at USD 1.26 bn, which is estimated to contribute about RUB 134 to the final 2020e DPS (vs our forecast of RUB 50), thus bringing upside risks for our FY 20e estimates. However, the actual amount of final 2020e DPS will depend on 4Q 20e results, which might bring a reversal effect from changes in WC. Anyway, we treat results as positive due to stronger FCF, which might result in higher than projected FY 20e dividends.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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