Tatneft 2Q 20 - Negative free cash flow bringing risks for final 2020e DPS
Today, Tatneft published its 2Q 20 results, which turned out to be weaker on revenue vs both our estimates and consensus, which we believe is due to lower than expected oil purchases resulted in weaker oil sales volumes. In turn, the companys EBITDA exceeded market expectations and came in stronger compared to our estimates due to lower than expected effective MET rate and lower than projected administrative expenses. Besides, net income also beat forecasts backed by reported FX gain vs expected loss. At the same time, Tatnefts free cash flow fell behind our estimates and turned negative in 2Q 20 at USD 107 mn. Notably, the companys net operating cash flow was weaker than expected pressed by negative impact from both changes in WC (USD 26 mn) and banking activities (USD 170 mn). Besides, capital expenditures were above estimates at USD 342 mn, maintaining 1H 20 at a high level (+25% yoy) despite an announced optimisation. Overall, we treat the results as negative, since the negative 2Q 20 FCF brings risks for final DPS, which we believe will be calculated on a base of 100% distribution of FY 2020e FCF.Tatneft PJSC and its subsidiaries are engaged in crude oil exploration, development and production principally in the Republic of Tatarstan, Russia. Co. is a holding structure, which incorporates oil and gas production boards, crude oil and gas refining companies, as well as enterprises and servicing works selling the crude oil and also the products of crude oil and gas refining and petrochemical products. In addition to this, Co. is also participating in the banking and insurance activities. Co.'s operations are divided into the following main segments: Exploration and Production; Refining and Marketing; and Petrochemicals.
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