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VTB Favors Lukoil as Russian Oil Pick on Dividend, Price Growth

VTB Capital named OAO Lukoil, Russia’s second-largest oil producer, as its top pick on dividends and potential price growth, according to a 2014 outlook released today.

“Lukoil remains the only independent oil and gas producer in Russia with liquid shares, attractive valuation and minorities’ interests aligned with those of core shareholders,” VTB Capital analysts Dmitry Loukashov, Ekaterina Rodina, Alexander Kirevnin and Elena Kopylova wrote in the report.

Lukoil billionaires Vagit Alekperov, the chief executive officer, and Leonid Fedun, his deputy, bought more than $625 million of company shares last year, pledging to continue increasing dividend payouts. The Moscow-based producer will further boost oil output in Russia, after reversing declines, while its “undemanding” stock valuation provides an opportunity for investors, the VTB analysts said.

VTB downgraded OAO Bashneft ordinary shares and OAO Surgutneftegas preferred shares to hold after gains last year, according to the note. The brokerage kept Russia’s biggest natural gas producers OAO Gazprom and OAO Novatek at hold.

Lukoil’s forecast of 15 percent annual dividend growth would imply a payout of 103.5 rubles a share, for a yield of 5.5 percent on 2013 earnings, VTB said. The yield takes into account the company’s distribution for the first half.

VTB has a price target for Lukoil of about $102 a share or 73 percent higher than current levels, according to the research note. The investment bank listed OAO Gazprom Neft second for growth prospects, with a price target of $5.30 a share, or 21 percent more than current levels.

VTB Capital does not cover OAO Rosneft, Russia’s largest oil producer. VTB President Andrey Kostin sits on its board.

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