Russian Oil & Gas: Not as fossil as you think (Lukoil and Tatneft upgraded to BUY, Rosneft stays HOLD)
As the IPO of Saudi Aramco, valued at USD 1.5-2trn, according to the media, has been delayed, we encourage investors to take a fresh look at Russian oil & gas, which has a combined market cap of “just†USD 367bn, but produces a similar amount of crude oil and also almost the same quantity of gas (when measured in boe terms). In other words, the Russian oil & gas sector produces twice as much hydrocarbons as Saudi Arabia, and can be purchased for about one-quarter of the supposed price of Saudi Aramco. Besides this, Russian companies have almost three decades of public track record, with a considerable improvement in corporate governance, level of disclosure and shareholder distributions recently. Here, we analyse the five structural drivers behind the transformation in the sector’s return on capital, and conclude that that new level of returns is sustainable; however, the sector continues to trade at just a 5.3x P/E (on our FY20E estimates), in line with its 10-year average P/E (5.6x) and at over a 50% discount vs. its international peers. We upgrade Lukoil and Tatneft to BUYs, keeping Rosneft as a HOLD.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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