International markets were trading weaker on Thursday, Fed Chairman J. Powell reiterated his view of inflation as a temporary phenomenon, despite the fact that it remains well above the target level of the Fed. However, fears of a negative impact on the economic outlook in the event of a sharp rise in inflation put pressure on the markets. S & P500 dropped 0.3%, Nasdaq lost 0.7%. Among the S&P sectors, oil and gas and IT companies sagged the most. Brent crude fell 1.7% to close at $ 73.47 a barrel.
The Russian market was trading in the red under the influence of the negative on world markets and the decline in oil prices. The RTS and Moscow Exchange indices lost more than 0.8%. The ruble weakened from 74.10 to 74.40 per US dollar.
Dynamics of the Russian market by industry:
- Oil and gas companies traded under pressure: Gazprom -1.6%, NOVATEK -1.9%, Rosneft -1.1%, LUKOIL -2%, Tatneft -3.3%.
- TCS Group overcame the trend for correction and grew by 1%, while Sber and VTB virtually unchanged at the close.
- Magnet fell 1.4% despite announced organizational changes to accelerate e-commerce and digital transformation, as well as the approval of a deal with Dixy by the Russian antitrust regulator.
Morning dynamics in futures suggests that the market will open slightly lower today.
Key events of the day
◆ Norilsk Nickel’s revenues remain stable despite $ 1.7 billion in regular and $ 3.5 billion in non-recurring expenses related to taxes, duties and compensation for accidents. In 2021-22, EBITDA should exceed $ 10 billion per year. The dividend yield for 2021 is expected to be 12.2% (under the current payout policy of 60% of EBITDA) or around 10% if the new dividend policy calls for a payout of 100% FCF. We maintain our OVERWEIGHT rating and raise our target price to $ 40.0 / GDR, reflecting the rise in metals prices. On spot prices, Norilsk Nickel trades at an EV / EBITDA multiple of 5.1x versus a 5-year average of 6.7x. Contact us for a copy of the report.
◆ Yesterday we published the BEAC. Ecosystem as a gift ”. We have updated the financial model for Sberbank taking into account the latest IFRS results and the bank’s strategic goals until 2023. We raised the target price to RUB 385. per ordinary share (from 320 rubles) and up to 360 rubles. per preferred share (from RUB 290). We affirm our OVERWEIGHT rating on both securities. We continue to view Sberbank as one of the most attractive investment stories on the Russian stock market, combining strong fundamentals, high return on equity (around 20%), good dividend yield (> 8%) and moderate earnings per share growth. Contact us for a copy of the report
◆ Severstal to publish operating and financial results for 2Q21, teleconference at 14:00
◆ X5 Group, ALROSA, Phosagro to publish operating results for 2Q21
◆ Eurozone: inflation in June, fin. estimate (consensus: + 1.9% YoY)
GAZPROM HELD ROUND TABLE ON HYDROGEN ECONOMY – HIGHLIGHTS (OGZD LI; OVER MARKET; GOAL – $ 8.6)
On July 15, Gazprom held an online meeting on the hydrogen economy. Below are the highlights of the meeting:
- At present, a national strategy for the development of hydrogen energy is being developed in Russia; according to the roadmap on 2020-2024, Russia in 2024 will export about 200 thousand tons of hydrogen, in 2035 – about 2 million tons. It is planned to create 6 production clusters near key export points.
- Hydrogen imports to Europe are projected at 14.26 Mt by 2035, and Russia is well positioned to occupy 50% of this volume in the future.
- However, the hydrogen industry is still at an early stage of development and a market has yet to emerge. The companies are currently assessing the potential of the market and are taking the first steps in its formation by investing in R&D (in particular, Gazprom invests about 3-5 million euros per year). The issue of transportation also remains open, as hydrogen causes destruction of equipment materials and pipes. Production tests on this issue are yet to be carried out.
Our opinion. The hydrogen agenda is gaining momentum and is attracting more and more investor attention, especially in light of the acceleration of decarbonization processes in Europe. Hydrogen energy is a potentially significant market for Russian oil and gas companies, which we believe will be able to take advantage of the opportunities that are opening up before them. For example, according to the roadmap until 2024 (approved in October 2020), Gazprom is to become one of the first Russian producers of hydrogen (by 2024 the company will study the possibilities of using hydrogen and methane-hydrogen fuel in gas installations and as a motor fuel in various modes of transport. ). We appreciate Gazprom’s close attention to this industry. Nevertheless, the news is neutral for the short-term dynamics of the shares.
GERMANY LOSES APPEAL TO REMOVE RESTRICTIONS ON GASPROM’S ACCESS TO THE OPAL GAS PIPELINE (OGZD LI; OVER MARKET; GOAL – $ 8.6)
The EU Court upheld Poland’s position and rejected Germany’s appeal to lift restrictions on Gazprom’s access to OPAL. Recall that Germany appealed to the EU Court of Justice in Luxembourg (CJEU) after a lower court in 2019 overturned the EU’s decision to allow Gazprom to increase supplies through OPAL (capacity 36 bcm) – one of two branches linking the Northern flow with the gas transmission infrastructure of Germany. Although the decision to limit Gazprom’s use of the OPAL pipeline to 50% was made in 2019, the company could compensate by using the Eugal onshore pipeline, which was built to receive gas from Nord Stream 2 and runs along the same route as OPAL.
Our opinion. We view the news as moderately negative for Gazprom at this stage, as the current decision suggests that the company will likely not be able to fully utilize the Nord Stream and Nord Stream 2 capacities at the same time. While we see no risks to Gazprom’s long-term export plans to Europe, this decision could slightly increase Gazprom’s dependence on the Ukrainian route.
NOVATEK TO ESTABLISH SUBSIDIARY FOR THE DEVELOPMENT OF LOW-CAPACITY LNG PLANTS (NVTK LI; NEUTRAL; GOAL – $ 211)
On July 15, NOVATEK’s Board of Directors announced the creation of a subsidiary, NOVATEK-LNG Fuel, which will facilitate the development of wholesale LNG markets, build small-scale LNG plants, develop retail networks for selling LNG as a vehicle fuel and supply LNG as part of Russia’s autonomous gasification program. As a reminder, in 2020, NOVATEK launched a low-tonnage LNG plant in Magnitogorsk (with a capacity of 40 thousand tons per year).
Our opinion. We regard this step as neutral, which fits into NOVATEK’s plans to actively develop the production and use of LNG as a motor fuel. In separate news, NOVATEK announced yesterday the creation of a Subcommittee on Climate and Alternative Energy, which will analyze the company’s activities and develop recommendations on issues related to climate and gas emissions. While we view the news as neutral for stock performance, the move is strategically positive in the long term given the growing investor interest in the ESG agenda and climate issues.
FAS APPROVED DIXY PURCHASE MAGNET TRANSACTION (MGNT RX; OVER MARKET; GOAL – RUB 5,700)
The Federal Antimonopoly Service of the Russian Federation issued a permit for the acquisition of the Dixy retail chain by Magnit, setting forth a number of conditions. Magnit is to exclude 142 Dixy retail outlets from the deal to avoid violating the 25% market share cap in 53 municipalities. In addition, Magnit will be obliged to reduce its market share to 35% in 22 Moscow regions by July 1, 2022. The company voluntarily assumed additional obligations to establish zero trade margins for certain items in each of the socially important categories, such as poultry, milk and bread … This initiative will be implemented across the entire Magnit network within 1 year after the completion of the transaction.
Our opinion. The news is positive for Magnit. Stores subject to exclusion from the perimeter of the transaction make up only about 5% of the total volume. Most of them are located in small municipalities in the North-West and Central regions, while Magnit initially planned to increase its shares in the Moscow region and St. Petersburg, which are not subject to these restrictions.