Russian gas giant Gazprom posts 17% profit decline in second quarter

By bne IntelliNews August 30, 2016

Russia’s largest natural gas producer Gazprom took a 17% year-on-year fall in net profit to RUB245bn ($3.78bn) in April-June, according to IFRS results released on August 29. Net profit for the first six months of 2016 overall declined by 9.6% y/y t RUB625bn.

Squeezed between lower export prices and increased domestic competition, Gazprom has been deteriorating in value, and recently lost its position as Russia’s largest company in terms of market capitalisation to Sberbank.

The energy company's capitalisation stood at around RUB1.22 trillion ($19bn) in the end of August, sinking deeply from about $90bn back in 2009 and nearly $300bn when it was the world's fourth most-valuable corporation in pre-crisis 2008.

However, net income of RUB245bn in the second quarter was better than RUB186bn expected in an Interfax survey, as Gazprom was helped by a RUB152bn currency gain on the stronger ruble in the reporting quarter.

The fall in net profit in the second quarter of 2016 was attributed to rising operating costs undermining revenue growth. In the second quarter alone revenues grew 5% y/y to RUB1.33 trillion and to RUB3.06 trillion in January-June overall.

Meanwhile, net sales to European and other non-CIS countries increased by 18% y/y in the first half of 2016 to RUB1.13 trillion. The growth in volume of gas supplies was twice as fast at 36% y/y to 109.4bcm, reflecting the average decline in prices of European gas supplies by 17.7% y/y in the reporting period.

In Russia, sales revenues declined by 1.8% y/y in January-June to RUB420bn (total volume sold down by 8.3% y/y to 110bcm), despite a price increase of 8.2% y/y.

Reports earlier in August said Gazprom’s earnings are threatened by a fall in European spot prices for natural gas to a seven-year low of $120 per thousand cubic metres (kcm).

For Gazprom, every $10/kcm decrease in spot prices for the fourth quarter of 2016 can translate into a 5.5% loss for fourth-quarter Ebitda, VTB Bank estimated, noting that Gazprom has been increasing the spot component in the final gas contract price for European clients.

Gazeta.ru reported on August 29 that average exports price of Russian gas in 2016 will decline to $170/kcm, down from $240 seen in 2015, according to the estimates of the Fund of National Energy Security. This threatens Gazproms with a loss of about $7bn.

Gazprom - KEY METRICS
  2014 2015E 2016E 2017E
Financials, $ mln        
Revenues 145,880 93,377 61,250 69,051
EBITDA 47,033 30,444 14,278 14,688
EBITDA margin 32% 33% 23% 21%
Net income 7,518 12,256 2,178 3,178
EPS (adj), $ 0.32 0.52 0.09 0.13
Div/share, $ 0.12 0.09 0.02 0.03
Valuation, Gearing and Yield        
EV/EBITDA 1.7 2.8 6.8 7.4
P/E 6.2 3.3 18.8 12.9
P/CF 0.9 1.9 3.6 3.5
Net debt/EBITDA 0.6 1.3 3.5 4.1
Dividend yield 5.90% 5.20% 1.30% 1.90%
Growth        
Revenues -12% -36% -34% 13%
EBITDA -26% -35% -53% 3%
EPS (adj) -79% 63% -82% 46%
Sector Valuation      
EV/EBITDA 2.2 3 5 4.3
P/E 3.7 4.4 9.6 7.3
P/CF 1.5 2.5 3.9 3.5
Sector Growth      
Revenues -6% -35% -42% 24%
EBITDA -16% -29% -40% 20%
EPS -27% -27% -57%  
Main Shareholders      
Government 50.00%      
Gazprom and affiliates 7.30%      
VEB 2.70%      
Other 40.00%      
Website http://www.gazprom.ru      

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