Gazprom Neft Advances on Russia Oil Output as Goldman Says Buy

Updated on

Gazprom Neft, the oil unit of Russia’s state-run natural gas exporter, rallied the most in five months, reversing this year’s decline in London as its second-quarter profit exceeded estimates amid higher production.

The shares rose 4.1 percent to $11.50, the highest this month, pushing year’s gain to 2 percent. The American depositary receipts jumped 2.3 percent to $11.51 in New York, narrowing this year’s decline to 2.2 percent. The stock was little changed in Moscow.

The depositary receipts advanced after the company posted net income of 73.2 billion rubles ($1.1 billion) for the three months ended June, up from 49.8 billion rubles a year earlier. That exceeded the 56 billion-ruble median forecast of five analysts surveyed by Bloomberg. Brent crude, which slumped into a bear market in July, sold for an average $63 a barrel in the second quarter.

“Russia’s macroeconomic landscape wasn’t too bad in the second quarter as oil prices were higher compared to the first quarter, which led to the recovery in the prices for oil products,” Alexander Kornilov, an oil analyst at Alfa Bank, said by phone from Moscow on Thursday. “Gazprom Neft is modernizing its refining assets and growing its output, which will be positive for the company.”

Production Jump

Brent crude, the benchmark traders use to price the country’s main export blend, slid 0.9 percent to $49.22 a barrel on Thursday, widening its drop from this year’s high to 27 percent. It last traded at $49.20 at 10:41 a.m. in Singapore.

Output jumped 21 percent to average 1.56 million barrels a day in the first half of this year, according to a company statement. Production may increase 15 percent or more, Chief Financial Officer Alexey Yankevich said on a conference call. Gazprom Neft’s output is growing faster than at Russia’s other top oil producers as it ramps up projects in Siberia, Arctic waters and Iraq.

Gazprom Neft’s free cash flow turned positive for the first time in three quarters, data compiled by Bloomberg show. It’s still negative for the first six months of this year. The London-listed shares trade at 3.4 times projected earnings, less than half the average of 11 peers, data compiled by Bloomberg show. Eight out of 12 analysts recommend buying the London-traded stock, while four rate it a hold.

Goldman Sachs Group Inc’s analyst Geydar Mamedov upgraded Gazprom Neft to buy from hold. Mamedov, who also upgraded Rosneft PJSC and Bashneft PJSC’s ratings to buy and increased OAO Surgutneftegas’s preferred shares to neutral, said that the current valuations in the sector offer “an attractive entry point.”

A Bloomberg gauge of U.S.-traded Russian stocks rose 0.7 percent to 50.75. The Market Vectors Russia ETF, the biggest exchange-traded fund tracking Russian equities, slid 1.1 percent to $16.42. Futures on the RTS Index expiring in September added 0.4 percent to 82,560 in U.S. hours.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE