Take Some Profits: Gazprom Neft


Oil and gas company in Russia has outperformed the broader market while positive free cash flow generation remains a challenge

Stock: Gazprom Neft’ PAO (ADR)(OTCMKTS:GZPFY) 

Gazprom Neft, an $18.6 billion Russian oil producer, currently trades 30% off its book value, 4.8 times P/E, and had an attractive 4.8% dividend yield with a healthy 1.2% payout ratio.

In the recent six months of operations that ended in June, Gazprom Neft, which is 95.68% owned by Gazprom PJSC, delivered a strong 24.3% revenue growth (vs. 6.8% at 3-year average) to ₽872.4 billion (Russian ruble) and 23.1% profit growth (4% at 3-year average) to ₽111.3 billion.

The Russian oil producer also had ₽69.8 billion in cash and cash equivalents and had ₽698.7 billion in debt (₽10.6 billion lower vs. its year-earlier period) resulting in debt-equity ratio 0.49 times (vs. 0.57 times a year earlier).

Also, shareholder equity rose by ₽187.3 billion year over year to ₽1.44 trillion.

Meanwhile, Gazprom Neft ADR shares have actually outperformed the broader S&P 500 index so far this year having generated 16.6% total returns vs. the index’s 14.24%.

In the past three years, the oil company allocated ₽1 trillion in capital expenditures, raised ₽110 billion in debt and other financing activities (net repayments), generated negative or free cash outflow of ₽114.7 billion, and provided ₽85.7 billion in dividends.

Analysts have an average overweight recommendation with a target price of $20.64 per ADR share vs. $19.50 at the time of writing.

In summary, Gazprom Neft is currently trading at its value and is a pass.

Disclosure: I do not have shares in Gazprom Neft, but have shares in Gazprom (ticker OGZPY).