Rosneft - Opening ST Long Trade Idea Ahead of 1Q21, 2Q21 Earnings

INVESTMENT CASEWe expect Rosneft to show the strongest improvement in financial performance within the Russian oil and gas sector over 2021-22. We see its FCF yield reaching 17% and its dividend yield exceeding 13% in 2022. Due to its elevated leverage, Rosneft is a major beneficiary from the prevailing strong oil prices and relatively weak ruble. It received $13.5 bln of prepayments in 4Q20, which helped it materially improve its liquidity position, and it has extended its debt maturity profile. We are opening a short-term trade idea to buy Rosneft shares ahead of the 1Q21 and 2Q21 financials, which we expect to be stronger than many are expecting. We maintain a longer-term BUY on the stock.PERFORMANCE AND WHAT'S IN THE PRICERosneft shares are up 28% YTD, outperforming both the MSCI Russia (+5%) and the RTS O&G index (+12%).WHERE WE ARE VS CONSENSUSOur 2021 EBITDA and net income forecasts are a respective 15% and 26% above the Bloomberg consensus. We think the market is underestimating the company's dividend potential in this favorable market environment. The consensus on dividends is 60% below our estimate for 2021 and 40% lower for 2022.KEY DRIVERS AND CATALYSTSWe think the key catalysts for Rosneft shares will be the 1Q21 and 2Q21 financials, which are likely to be released within the first two weeks of May and August, respectively.The Rosneft BoD usually sets the AGM date and preliminarily approves the annual report in late April. This year the annual report might contain an update on the company's flagship upstream project, Vostok Oil, including a more detailed reserves disclosure. President Putin has also asked the government to review tax incentives and infrastructure support for Rosneft's Far East petchem complex by the end of May. RISKS TO OUR VIEWA considerable decline in oil prices and any changes limiting the company's dividend distribution are the main risks to our view.