Russneft confirmed at SELL, TP RUB 220 - Low oil prices taking even a greater toll than expected
We keep our SELL recommendation for ordinaries unchanged, with our DCF TP down to RUB 220/share (from RUB 360/share) on the back of a far worse sensitivity to the oil price fall than expected, a lower share of tax reliefs based on 1H 20 results and lower production (-10% yoy in 20e). Russneft is negotiating the restructuring of its debt (> USD 1.1 bn with a bullet in 26e of almost USD 700 mn), transferred by VTB to Qatar bank CQUR, and has reportedly managed to get a grace period for 2020e after a technical default. Yet, from 2021e, together with interest, principle repayment and preferred stock dividends, the company needs to pay >USD 220 mn/year, only possible to cover by FCF at Brent of >RUB 4,000/bbl vs RUB 3,200/bbl now (at RUB 17 bn capex).NK Russneft' PAO is a Russia-based company engaged in the oil and gas industry. It is mainly involved in the extraction and distribution of crude oil, as well as production of associated petroleum gas (APG), natural gas and gas processing. The Company and its subsidiaries hold more than100 subsoil licenses and operate over 125 oilfields. The Company's extraction operations are structured into three geographical groups: West Siberian Group, Volga Region Group and Central Siberian Group. In addition, the Company operates on the territory of Azerbaijan. NK Russneft' PAO operates in various regions of Russia and in Belarus. The Company has its own research and technology center. The Company supplies oil both to Russian market and to export markets of Commonwealth of Independent States (CIS) and other countries, including Hungary and Slovakia.
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