Despite low payout ratio, company shares now trades at premium
Stock: Tatneft’ PAO (ADR)(OTCMKTS:OAOFY)
Tatneft, a ₽970.4 billion (Russian Ruble; $16.7 billion USD) Russian integrated oil and gas company, has an appealing 5.4% dividend yield accompanied with a 22% payout ratio.
Although already considered to be high of yield there is still room for Tatneft to even raise this payout since the company pursues a progressive dividend policy distributing at least 30% of the net profit based on RAS (Russian Accounting Standards) as dividend payments, according to filings.
In its recent six months operations, the 67-year-old oil and gas company reported 19% revenue increase compared to its year-ago period to ₽318.7 billion and a more impressive 27% profit rise to ₽61.74 billion.
In particular, Tatnefts biggest business generator—exploration and production (60% of total unadjusted revenue) rose 28.6% year over year while the oil and gas company’s relatively new banking business (5% this first half vs. nil last year) recorded segment earnings margin of 7.4%.
The 35.93% owned Republic of Tatarstan-owned Tatneft also had ₽77.1 billion in cash and cash equivalents (+₽37.4 billion from year ago period) and ₽40.9 billion in debt (+₽26.3 billion from last year) with debt-equity ratio 0.06 times vs. 0.02 times a year earlier.
Further, overall equity rose by ₽69.15 billion to ₽713.3 billion.
Meanwhile, Tatneft has been quite very prudent in terms of its cash flow allocation in recent years. From 2014-2016, the company allocated ₽251 billion in capital expenditures, reduced its debt by ₽58.5 billion, raised ₽211 million in share issuances, and provided ₽74.7 billion in share repurchases and dividends representing 45% of its ₽167.3 billion free cash flow in the period.
Analysts have an average overweight recommendation on Tatneft having a price target of $43.14 a share vs. $43.39 at the time of writing. Applying historical revenue growth, PS averages and a 15% margin indicated a per share figure that is 25% lower than the current at $32.68 a share.
Having provided a wonderful 48.6% total return in the past year alone and despite the attractive yield and low payout ratio, Tatneft is a pass.
Disclosure: I do not have shares in any of the companies mentioned.