Analysts at Morgan Stanley expect the growth potential of the shares of the oil company “Rosneft” is higher than that of its competitors “LUKOIL” – 39% vs. 19% from current levels.
MOSCOW, 7 Dec. Shares of “Rosneft” strategy “to Buy” have more potential than the papers of “LUKOIL” strategy “to Keep”, said in a research report, the American Bank holding company Morgan Stanley.
The receipt “Rosneft” down payments helps to reduce debt and invest in the segment of exploration and production, said analysts of the Bank.
“We also note a more significant reduction in operating costs, more stable production and more attractively valued compared with previous periods”, — stated in the analytical report.
Experts changed the recommendation on the shares of “LUKOIL” to “Hold” a share “Rosneft” to “to Buy”: “We consider an impressive dividend history “LUKOIL” (dividend yield of 7-8% in 2016 gg.) and sustainable cash flow. However, in our opinion, these advantages are well known and priced in by the market, while the shares of “Rosneft” have the potential for further growth compared to their current value”.
The potential for further growth in the value of securities of “Rosneft” analysts at Morgan Stanley explain three causes. First, the question about the solvency of the company receiving more than $15 billion as an advance payment for future deliveries of oil, the company is able to redeem about $26 billion of debt maturing in 4Q 2015 and 2016. in addition, Rosneft may continue an intensive investment in exploration and production.
Secondly, the company more visible and to respond effectively to the deteriorating external economic environment. The results of Rosneft for 9 months of 2015 shows that the company reduced its operating costs faster than it was made by “LUKOIL”, add the analysts, predicting further values provided timely completion of refinery modernization, and the growing impact on margins from new fields at the expense of the met.
“As a result, the yield of free cash flow in future periods is expected at a higher level than in “LUKOIL”, — experts expect.
When assessing Bank oil prices and assumptions regarding the rate for the pair rouble/dollar may grow up shares of both companies, the stocks of Rosneft, apparently, take into account a higher risk premium, and the cost for valuation models based on discounted cash flow assumes a higher growth potential in comparison with LUKOIL — 39% vs. 19% growth from current levels.