WOOD Flash – Surgutneftegas: 1Q18 RAS results – broadly in line, accrued dividend on preferred shares at RUB 0.6

On 28 April, Surgutneftegas (HOLD, USD 6.0/GDR and RUB 32/preferred share PTs) reported RUB 62.1bn in net income for 1Q18 under Russian accounting standards (RAS), compared to a net loss of RUB 90.7bn over the same period last year. The accrued dividend on the preferred shares amounts to RUB 0.6 (a 7.4% annualised dividend yield), although Surgutneftegas’ quarterly earnings tend to be highly volatile as the company books gains and losses from the revaluation of its cash pile, depending on the changes in the RUB/USD rate over the period.
We find Surguteneftegas’ defensive qualities as attractive in periods of increased macro and geopolitical uncertainty; however, this is partially offset by much lower transparency over financials and its shareholder structure compared to other companies in the sector, and the lack of a clear growth strategy in the medium and long terms. Hence, we rate both the common and preferred shares as HOLDs.