Download Surgutneftegas`s preferred shares: take a closer look!

16 August 2010
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Surgutneftegas's preferred shares:
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In Q2 2010, Surgutneftegas's net income grew 5.7 times. Last week,
Surgutneftegas reported net income of RUB 47.7bn in Q2, which is 460% higher
than Q2 2009 number and by 470% higher than Q1 2010 net income figure. In our
SWOT
analysis
view, this is mostly attributable to forex gains. Therefore, if ruble
keeps it
weakening trend further, the company's net income in 2010 may total RUB 142bn,
according to our estimates.
Timur Khairullin, CFA
Deputy Head of Research
+7 (495) 2874407
[email protected]
Dividend yield of preferred shares may come at 10% in FY2010.
According to Surgutneftegas's by-laws, the company’s dividend payout ratio is
set at 7.1% of annual net income for the preferred shares. According to our net
income forecast of USD 4.7bn for FY 2010, dividend payments on preferred stock
could total approximately USD 330mn (USD 0.043 per share), which implies 10%
dividend yield for this class of stocks.
Dividend yield of Surgutneftegas's preferred stock, %
14%
12%
12%
10%
10%
8%
7%
6%
6%
4%
3%
3%
2005
2006
2%
0%
2007
2008
2009
2010П
The discount of Surgutneftegas's preferred stocks to ordinaries is
abnormally high now. Currently, the discount of preferred stock to
ordinaries equals approximately 55%, while the historical average stands at 38%,
almost 1.5 times lower.
We think that such discount is not justified due to virtually no real voting rights
for the ordinary stocks and highly attractive dividend yield of the preferred
shares.
COMPANY OVERVIEW – SURGUNEFTEGAS PREFERRED SHARES
16 August, 2010
The discount of Surgutneftegas's preferred shares to ordinaries usually
decreases in Q3. As historical data shows, SNGSP to SNGS discount
peaks in summer months. It is conventional to think that Surgutneftegas's
preferred stock becomes interesting in March only, before the record date.
However, in practice, the discount starts narrowing already in autumn.
Therefore, by investing now, investors can benefit from the trend.
Average historical discount of SNGSP to SNGS* on a monthly basis
45%
40%
35%
December
November
October
September
August
July
June
May
April
March
Febrary
January
30%
*Median values for 1999–2009
We think that Surgutneftegas's preferred stock provides an attractive
investment opportunity. Due to substantial cash position of more than
20bn (equaling more than 60% of the company's market capitalization),
Surgutneftegaz's shares can be considered defensive stocks as the
company's market value is less dependent on future cash flows and oil
prices. According to our estimates, fair value of the preferred shares is
USD 0.71, which implies upside potential of over 60% from the current
level.
© 2010 Grandis Capital Investment Company, LLC
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COMPANY OVERVIEW – SURGUNEFTEGAS PREFERRED SHARES
16 August, 2010
Grandis Capital Investment Company LLC
6 Puteisky Tupik, Moscow, 105064
tel.: +7 495 287 44 07, fax: +7 (495) 287 44 07
www.grandiscapital.ru, [email protected]
Sales & Trading
Mikhail Kozakov
Head of the Department
[email protected]
Sales
Research
Anton Makarov
Deputy Head of the Department
Head of Sales
[email protected]
Denis Barabanov
Head of Research
[email protected]
Dmitry Shatsky
Chief Sales Representative
[email protected]
Timur Khairullin, CFA
Deputy Head of Research
[email protected]
Konstantin Lynov
Sales Representative
[email protected]
Irina Prokopeva
Analyst
[email protected]
Denis Vakhrushev
Sales Representative
[email protected]
Customer Service
Ekaterina Kharchenko
Head of Customer Service
[email protected]
Portfolio Investments
Trading
Dmitry Ivanov
Head of Portfolio Investments
[email protected]
Andrey Tolstousov
Portfolio manager
[email protected]
Maxim Bersenev
Head of Trading
[email protected]
Mikhail Kan
Senior Trader
[email protected]
License for dealing operations of a professional securities market participant
Number: 077-11120-010000 (unlimited) Issued by: FSFM of the Russian Federation, Issue date: 01.04.2008
License for securities management of a professional securities market participant
Number: 077-11124-001000 (unlimited) Issued by: FSFM of the Russian Federation, Issue date: 01.04.2008
License for brokerage of a professional securities market participant
Number: 077-11116-100000 (unlimited) Issued by: FSFM of the Russian Federation, Issue date: 01.04.2008
License for depositary operations of a professional securities market participant
Number: 077-11128-000100 (unlimited) Issued by: FSFM of the Russian Federation, Issue date: 01.04.2008
License of a futures and options commission merchant in the exchange trade
Number: 1249 (unlimited) Issued by: FSFM of the Russian Federation, Issue date: 04.09.2008
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Warning: risk of loss. Investments in stock and any other securities may result in losses. Investments in bonds and debt instruments may result in losses due to reduced value of bonds, and unexpected loss, which may arise from full or partial
default of the issuer (the enterprise's refusal to service its debts). In case of a default or bankruptcy of the issuer, losses may amount to 100% of the investment. Investments in stock may result in losses due to reduced market value of the stock. Owing
to the bankruptcy of the issuer, losses may amount to 100% of the investment. Investments in derivatives (futures or options) may result in losses. Losses may stem from changes in the market value of the underlying asset. Losses may amount to
100% of the investment (margin).
Additional information may be requested. This overview was produced for information purposes only and should not be regarded as an incentive to buy or sell securities. To prepare the overview, Grandis Capital used sources assumed to be
reliable. However, neither the management, nor personnel can guarantee accuracy of these data and can be held liable for possible losses of investors connected with the information contained herein. Remuneration of analysts does not depend on
the advice they provide or opinions they express in analytical reviews. Grandis Capital Investment Company can make transactions with securities mentioned in this review on its own or on behalf of Clients.
© 2010 Grandis Capital Investment Company, LLC
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