Transneft confirmed at BUY, RUB 215,000 - Capex cut and tariff indexation should keep FCF yield tasty

We confirm our BUY call for preferreds noting a strong double-digit FCF yield (11% in 20e, same as last year) after a 20% share price drop since end-19 on the back of the new OPEC+ production cuts and following the Russian market collapse driven by lower oil prices. Despite an expected 7%+ lower yoy oil transportation (incl. condensate) and thus EBITDA, all the negative effects on FCF excl. WC changes should be outweighed this year by lower capex (by RUB 20-30 bn incl. VAT) as well as by tariff indexation. Considering the terms of the OPEC+ agreement, the oil production cut could slightly ease up by 3% yoy (incl. gas condensate) in Russia as soon as next year. Assuming that, Transnefts EBITDA should then recover to the 2019 level with a 21e FCF yield up to 14-15% leaving further room for dividend improvements (from ca. 9% DY for 2019e). We note that very strong (ca. 50%) EBITDA margins and RUB tariff indexation should soften the negative effects of lower transportation on EBITDA in volatile times like these. In our view, Transneft seems safer EBITDA and FCF-wise than oil companies, and the current discount of 20% on EV/EBITDA 20e (3.2x) vs them seems unjustified. Overall, we raise our TP for preferreds on the back of lower risk-free rates to RUB 215,000 from RUB 196,000, keeping our 25% discount for preferreds vs ordinaries.