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Analysts welcome Gazprom 2012 capex cut plan but still skeptical

https://www.chemnet.com   Dec 05,2011 Platts
Russian Gazprom's plans to reduce its capital expenditures in 2012 by more than 30% year-on-year is seen as a positive sign for the shareholders of the gas giant who have long been critical of its high capex and low dividends, analysts said Friday.

On Thursday, Gazprom's management committee considered a draft budget of around Rb800 billion ($25.6 billion) for 2012, which would represent a significant cut in spending from Rb1.2 trillion in 2011, and an increase in dividends payments, Russian media reported citing unnamed company sources. The figures exclude Gazprom's energy assets and the oil arm Gazprom Neft.

Gazprom is also considering a hike in dividends payments to nearly Rb199 billion in 2012, compared with this-year's record payments of Rb91.1 billion, Russia's Vedomosti daily said, citing an unnamed source.

Gazprom has not confirmed the figures officially, with the company's press office declining to comment on the reports.

But even if the gas giant approves 2012 investments at the reported level, it cannot be ruled out that it would increase spending at a later stage, analysts said.

"We are convinced that this decrease will not materialize, certainly not in a year when the company will continue making investments in starting and subsequently ramping up production at its 115 Bcm pa Bovanenkovskoye Yamal mega-project (set to come online in 3Q12 and reach full capacity by 2019, according to our estimates)," Renaissance Capital said in a note.

The bank says next year's capex situation is likely to mirror 2011's, when Gazprom revealed an initial number of Rb816 billion but raised the investments to RB1.2 trillion through the year.

"Still, we think an initial announcement of a lower figure could be positive for the company's shares, especially in concert with a higher dividend commitment, which some in the market would take as signaling a new era of fiscal discipline," Renaissance Capital said.

"We believe the cut to the investment program in 2012 may also be positive for sentiment, as the company would show that it is willing to improve its investment case by addressing its key weak spot, spending efficiency, while at the same time acknowledging the fact that it seems quite difficult to further boost its capex budget," said analysts at Moscow-based Alfa-Bank.

If Gazprom resolves the issues of high capex and low dividends, it should become much more attractive for investors, said analysts at UBS bank.

The potential cut in the investment program may add at least 5.1% to Gazprom's target price, analysts at Alfa-Bank calculated, adding that the investment program planned for 2013-2014 remains "disappointing".

In June, deputy CEO Alexander Ananenkov said the investment programs for 2012 and 2013 were likely to be at Rb1.2 trillion and Rb1.3 trillion, respectively.

The current estimates are set at RB1.46 trillion for 2013 and nearly Rb1.6 trillion for 2014, according to Vedomosti's unnamed source.

Gapzrom's shares traded at Rb184.6/share on MICEX Friday (as of 0922 GMT) gaining 1.8% from Thursday.

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