Rosneft 1Q 20 - FCF stays strong, while FX losses might lead to DPS reduction
Today, Rosneft published its 1Q 20 results, which came in close to both our estimates and consensus on revenue and EBITDA, while net income was below the market expectations due to significant FX losses of USD 2.7 bn. More importantly, the companys free cash flow in 1Q 20 came in higher than projected due to stronger NOCF and lower than expected capital expenditures. Overall, despite a drop in EBITDA, Rosneft generated considerable free cash flow of USD 3.3 bn supported by the decline in capex and by the positive effect from changes in working capital. It is also worth mentioning that in 1Q 20 Rosneft repaid USD 1.6 bn of obligations under prepayments, which reduced to USD 18.2 bn, while the net debt (including obligations under prepayments) decreased to USD 61.1 bn. Overall, we treat the news as positive for the companys stock, however we see risks of reduction in future dividend payments due to significant FX losses affecting its net income.OJSC OC Rosneft is a vertically-integrated Russian oil and gas company with upstream and downstream operations in each of Russia's oil-producing regions. Headquartered in Moscow, Co. operates ten oil and gas producing enterprises across Russia and is involved in over ten exploration projects. In addition to its upstream operations, Co. also owns two refineries, which have a combined capacity of 10 million tons per year, as well as four main oil export terminals and a nationwide network of over 600 service stations. Co.'s downstream operations consist of its crude oil export structure, refining operations and nationwide network of marketing subsidiaries.
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