WOOD Flash – Gazprom: moderate expectations ahead of Investor Days
We share our latest thoughts on Gazprom ahead of its Investor Days this week, which will be held in New York (11 February) and London (13 February). We do not have high expectations, given the company’s track record and strong share price outperformance over the past 12 months, and the dramatic changes in the gas spot market. We believe it is time for Gazprom’s new management team to come up with specific quantitative targets on cost cutting, asset optimisation and FCF generation; however, we doubt the company will be ready to outline these metrics just yet. Nevertheless, we maintain our positive stance on Gazprom over the medium term, as gas exports accounts for about one-third of its profits, and current gas spot prices in Europe leave no profit for US LNG exports and encourage the increased use of gas in power generation at the expense of coal. Moreover, the launch of exports to China, the growth of tax-exempt gas production, and the increase in the profits of non-gas businesses should partially offset the temporary weakness from gas exports. Ultimately, in our view, Gazprom’s investment case will be driven by the ability and willingness of its new management team to improve the company’s cost base, increase its transparency and deliver shareholder value.
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