Goldman Sees Surgut 30% Gain Extending on Cash: Russia

OAO Surgutneftegas, the biggest gainer among New York-traded Russian stocks, will extend last year’s 30 percent rally as it adopts international accounting standards that will show the oil producer has about $30 billion in cash, Goldman Sachs Group Inc. and UBS AG said.

American depositary receipts of Russia’s fourth-biggest oil company rose to a 10-month high last week at $7.14 as oil capped the longest run of weekly gains in 14 months. The Bloomberg Russia-US Equity Index of U.S.-listed stock climbed 2.8 percent to 103.11, the highest since September, as CTC Media Inc. and VimpelCom Ltd. surged more than 12 percent. Futures on the RTS Index lost 0.2 percent to 160,180 on Jan. 18.

Surgut will prove it had the most cash in a decade at the end of 2012 as it’s scheduled to report earnings in April under international accounting standards for the first time since 2001, Michele della Vigna and Peter Hackworth, analysts at Goldman in London, wrote in an e-mailed report on Jan. 17. Investors would expect the company to use the money for dividend payments and new exploration projects, UBS said.

“The company will probably show more than $30 billion in cash under international accounting standards and that is going to be a catalyst for further price increases,” Constantine Cherepanov, an analyst at UBS in Moscow who has a buy rating on the stock, said by phone from Moscow on Jan. 18. “The money pile protects the stock from any meaningful decline.”

Russian Standards

The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, increased 0.9 percent to $30.38 on Jan. 18, capping a 2.1 percent weekly gain. The RTS Volatility Index, which measures expected swings in the stock futures, declined 6.1 percent to 20.20.

Surgut probably had $32.2 billion in cash by end-2012, Goldman said, reiterating its buy rating and adding the stock to the central and eastern Europe, Middle East and Africa focus list. The company’s market value was 1.03 trillion rubles, or $33.9 billion, as of Jan. 18, data compiled by Bloomberg show.

Russia’s three biggest oil producers -- OAO Rosneft, OAO Lukoil and TNK-BP -- currently report to U.S. Generally Accepted Accounting Principles, or GAAP, and have either already shifted to IFRS or pledged to do so. Surgut isn’t required to give details on its cash holdings and treasury shares under Russian accounting standards.

“There are funds that are not allowed to buy shares of companies that don’t report in IFRS,” Cherepanov said. “If that obstacle is removed, demand for Surgutneftegas’s shares would rise immediately.”

Shpilman Field

The ADRs rose 0.8 percent on Jan. 18 in New York for a 6.6 percent weekly advance. One ADR is equal to 10 Moscow-listed preferred shares. The stock climbed 2 percent to 21.63 rubles, or 71.5 U.S. cents, on Jan. 18 in Moscow, the highest level since Sept. 10.

Surgut increased crude oil output by 1 percent to 61.4 million tons in 2012 from 2011, the company said in a Jan. 15 statement on its website. Gas production was at 12.2 billion cubic meters in 2012, according to the statement.

The company will probably keep production near the current levels in 2013 through 2015 before increasing output as soon as in 2016 after winning rights to the Shpilman field in December, Goldman Sachs’s analysts said in the report.

The oil producer won rights for the Siberian field by offering to pay almost four times more than the asking price, outbidding OAO Rosneft and OAO Gazprom Neft, Russian subsoil agency Rosnedra said in a Dec. 18 statement.

“Favorite Vehicle”

OAO Sberbank rose 2.4 percent to $13.77 in New York on Jan. 18 to the highest since March. In Moscow, the stock gained 2.2 percent to 103.4 rubles, or $3.42, the highest level since July 15, 2011. Trading volume was at 1.5 times the average for the past three months. Each ADR represents four common shares.

Sberbank rallied after JPMorgan Chase & Co.’s analysts led by Alex Kantarovich in Moscow said in a Jan. 18 report that the stock has the potential to gain 37 percent in 2013, calling it JPMorgan’s “favorite vehicle” for Russian exposure.

ADRs of VimpelCom posted a weekly gain of 12 percent, the biggest since the five days to Aug. 17. They were unchanged at $11.9 on Jan. 18.

CTC Media rose 2.5 percent to $9.28 on Jan. 18, the highest level since Oct. 22, and advanced 14 percent for the week, its biggest gain since August.

Crude oil for February delivery added 0.1 percent to $95.56 a barrel on the New York Mercantile Exchange on Jan. 18, the highest settlement since Sept. 17. Brent oil for February settlement increased 0.7 percent to $111.89 a barrel on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export blend, added 0.7 percent to $110.89.

The ruble fell 0.3 percent to 30.27 on Jan. 18. Ruble futures showed the currency little changed at 30.539 per dollar.

United Co. Rusal, the world’s largest aluminum producer, gained 1.2 percent to HK$5.01 in Hong Kong trading as of 10:45 a.m. local time. The MSCI Asia Pacific Index was little changed.

-- Editors: Marie-France Han, Tal Barak Harif

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