WOOD Flash – Lukoil: 2Q18 – stronger FCF, better capex dynamics
Lukoil reported its 2Q18 IFRS results earlier today (29 August), which we see as strong, especially at the FCF level, driven mainly by better capex dynamics. We reiterate our BUY rating and USD 87 PT for Lukoil. We note that, with the EGM approving the cancellation of 100.6m treasury shares yesterday (28 August), the full buyback programme should be launched any time now. We estimate that, at a USD 75/bl oil price, Lukoil could spend c.USD 2.5bn on the buyback within the next 12 months (5% of its market cap, c.40% of the available free float, implying quite a substantial impact on the share price). While Lukoil is no longer our top pick in the sector, we still see upside in the stock as the market may be underestimating the scale of the buyback, as well as the future growth potential from Uzbek gas, the full ramp-up at the Caspian fields and further optimisation in Downstream. Lukoil trades at 4.7x P/E on our FY19E estimates, offering a 6.4% dividend yield, with the potential 5% buyback on top.
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