Tatneft raised to BUY, TP RUB 690 - Premium eliminated, yields attractive as stock dropped

Tatneft is now trading almost with no premium on multiples to the Russian sector average, while previous to the crisis it had a 30-40% premium on 2020e EV/EBITDA. At the same time, Tatneft offers competitive yields on free cash flows and dividends. We are increasing our recommendation to BUY from SELL for all types of shares. Moreover, we have increased our target prices for ordinary and preferred shares to RUB 690 (from RUB 640) due to rouble depreciation, but have cut TP for ADRs to USD 53 (from USD 60). Despite a drop in oil prices, Tatneft may offer attractive yields during 2020e. According to our estimates, in the case of low prices in 2020e Tatneft should payout RUB 48.9/share, including RUB 12.7 as the final DPS for 2019e plus RUB 36.2 as interim dividend for 2020e. As a result, the yield in 2020e could be about 8.8%. In 2021e, the DPS may increase to RUB 57.6 (yield of 10.4%) with a recovery to RUB 78.1 (yield of 14.1%) in 2022e. The results of Tatneft will be driven not only by gradual price recovery, but also thanks to additional production volumes (+10% over the next three years) and a hike in refining volumes (+22% over three years) as a result of the launch of a new unit at TANECO.