Novatek Advances as Net Seen Doubling: Russia Overnight

OAO Novatek, Russia’s biggest non-state natural gas producer, climbed to an 18-month high in London after the investment banking arm of OAO Sberbank said net income is poised to double in three years.

Global depositary receipts of Novatek added 1.6 percent yesterday to trade at the widest premium since June to their Moscow-listed shares. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. snapped a two-day advance as Yandex NV posted the biggest decline in six months. OAO Gazprom rallied in New York, almost wiping out its discount to the stock in Moscow. RTS stock index futures expiring in December dropped 0.9 percent to 145,710 in U.S. hours.

Novatek, controlled by billionaires Gennady Timchenko and Leonid Mikhelson, will benefit from earnings at its crude oil business and dividends from joint ventures, Sberbank CIB’s analysts wrote in a note yesterday. They raised the price estimate for its GDRs to $188, implying a 37 percent surge from yesterday’s close. President Vladimir Putin on Oct. 7 fueled wagers a monopoly on liquefied natural gas exports may soon be lifted, prompting a rally in Novatek’s shares.

“The growth outlook is strong,” Rob West, an analyst at Sanford C. Bernstein & Co. in London, said by phone yesterday. He has the equivalent of a buy rating for the stock. “The stock’s had a very good run, but it remains a name that we like at this level.”

Novatek holds 25.5 percent in SeverEnergia, in a joint venture with OAO Gazprom Neft, Eni SpA and Enel SpA, to produce natural gas and gas condensate, which is similar to crude oil. Novatek also has a 49 percent stake in Nortgas, which is producing gas and crude oil at the North-Urengoyskoye field.

SeverEnergia, Nortgas

SeverEnergia and Nortgas should begin paying dividends to shareholders in 2015 and 2016, respectively, according to Sberbank. In addition, Novatek plans to start its Yarudeyskoe crude oil field in 2015.

“The uptick in financials for Novatek has just started,” Oleg Maximov, a senior oil and gas analyst at Sberbank CIB in Moscow, wrote in a note yesterday. He has a buy rating for the shares. “If you think you have seen everything with this company, then think again.”

Novatek reported on Aug. 9 a 20 percent jump in second-quarter profit as sales volumes increased and prices gained. Net income rose to 11.6 billion rubles ($358 million) from 9.66 billion rubles a year earlier, exceeding the 11.3 billion-ruble average estimate of 11 analysts surveyed by Bloomberg. Revenue advanced 29 percent to 58 billion rubles.

Export Laws

Putin in June called for export law changes to encourage companies to produce LNG and take advantage of a “window of opportunity” in the Asia-Pacific market. Russia will move to liberalize LNG exports in the “nearest future,” Putin said at a summit in Bali, Indonesia earlier this week.

Sixteen out of 21 analysts tracked by Bloomberg recommend buying Novatek’s London stock. The GDRs rallied to $137.10 yesterday, the highest level since April 2012, to trade at a 13 percent premium to the Moscow-listed shares.

The Bloomberg Russia-US gauge dropped 0.4 percent to 99.22 yesterday. The Micex Index added 1.7 percent to 1,505.14 in Moscow, the highest level since Feb. 20, as rising crude boosted appetite for oil and gas producers’ shares.

Yandex joined a slump in Internet companies traded in the U.S. Russia’s largest search engine sank 5.1 percent to $35.54, extending a three-day decline to 7.4 percent.

American depositary receipts of Gazprom rallied 2.5 percent to $9.33, the highest level since March 15.

The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, rose 0.3 percent to $28.78 yesterday. The RTS Volatility Index, which measures expected swings in the index futures, added 3.2 percent to 25.62 in U.S. hours.

United Co. Rusal, a Moscow-based aluminum producer, lost 0.4 percent to HK$2.36 in Hong Kong trading as of 10:30 a.m. local time. The MSCI Asia Pacific Index fell 0.1 percent.

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