Novatek - 2Q09 net income beats consensus by 6.6%

Novatek reported its 2Q09 results yesterday. IFRS consolidated net income came in at RUB 7.18bn, up 1.8% y/y and 236.4% q/q. The reported figure came 6.6% above the consensus forecast of RUB 6.73bn (reported by Bloomberg) but 3.1% below our own estimate of RUB 7.41bn. EBITDA came at RUB 9.23bn, down 10.5% y/y but up 35.0% q/q. The figure stands 3.7% above the consensus estimate but broadly in line with our own forecast. We expect to see a neutral market reaction to the results. Novatek’s 1H09 EBITDA represents 46.7% of the full-year consensus on Bloomberg. Given the exceptionally weak 1Q09 result but an improving intra-year trend, we see a good chance for the company to meet market expectations in 2009.

Sales arrived at RUB 23.1bn for 2Q09, up 8.4% y/y and 36.3% q/q, 7.1% above the consensus estimate of RUB 21.6bn and 7.6% above our own forecast of RUB 21.5bn. The main reason for the difference is the increase of gas prices and the higher volumes of condensate. The healthy sales figure also suggests to us that Novatek was pretty flexible in setting contract prices in order to sustain volumes in an oversupplied market. Total gas production stood at 7.5bcm in the quarter, up 2.5% y/y but down 7.5% q/q, 3.1% above our forecast of 7.3 bcm.

Operating costs (COGS excluded) stood at RUB 12.64bn, up 34.5% y/y and up 28.4% q/q. The figure came 7.8% above our own forecast of RUB 11.72bn due to higher-than-expected transportation expenses and taxes (other than income taxes). As a result of higher sales but also higher operating costs, EBIT posted RUB 7.95bn, (-14.8% y/y, +40.5% q/q), broadly in line with our estimate.

Financials came in at a profit of RUB 1.10bn, versus RUB 2.91bn loss in 1Q09. The impressive performance was primarily due to revaluation gains on foreign currency loans after the rouble strengthened 8.2% q/q against the US$. In 2Q09 Novatek booked a tax payment of RUB 2.74bn, implying an effective tax rate of 21.0% versus our estimate of 27.0%.

Novatek Group: Quarterly P&L

IFRS consolidated, RUB m	2Q 2008A	1Q 2009A	2Q 2009F	2Q 2009A	var	q/q	y/y	Cons.	Diff.
Total revenues and other income	21,352.0	16,981.0	21,516.1	23,148.0	7.6%	36.3%	8.4%	21,617.2	7.1%
COGS	-1,632.0	-293.0	-401.6	-1,274.0	217.2%	334.8%	-21.9%
Gross profit	19,720.0	16,688.0	21,114.5	21,874.0	3.6%	31.1%	10.9%
Operating expenses	-9,401.0	-9,847.0	-11,723.3	-12,641.0	7.8%	28.4%	34.5%
Transportation expenses	-4,229.0	-5,273.0	-7,329.0	-8,295.0	13.2%	57.3%	96.1%
Taxes other than income taxes	-1,792.0	-1,921.0	-1,758.3	-1,935.0	10.0%	0.7%	8.0%
Materials, services and other	-1,743.0	-1,492.0	-1,416.0	-1,469.0	3.7%	-1.5%	-15.7%
General and administrative expenses	-1,516.0	-1,100.0	-1,120.0	-161.0	-85.6%	-85.4%	-89.4%
Exploration expenses	-185.0	-99.0	-150.0	-231.0	54.0%	133.3%	24.9%
Other operating expenses	64.0	38.0	50.0	-550.0	n/a	n/a	n/a
EBITDA	10,319.0	6,841.0	9,391.1	9,233.0	-1.7%	35.0%	-10.5%	8,908	3.7%
Depreciation and amortisation	-984.0	-1,182.0	-1,358.4	-1,281.0	-5.7%	8.4%	30.2%
EBIT	9,335.0	5,659.0	8,032.7	7,952.0	-1.0%	40.5%	-14.8%	8,276	-3.9%
Financial result	22.0	-2,908.0	2,158.4	1,103.0	-48.9%	n/a	4913.6%
Income from associates	-45.0	-16.0	-40.0	11.0	n/a	n/a	n/a
Pretax profit	9,312.0	2,735.0	10,151.1	9,066.0	-10.7%	231.5%	-2.6%
Income tax	-2,256.0	-596.0	-2,740.8	-1,903.0	-30.6%	219.3%	-15.6%
Minorities	-3.0	-5.0	-4.0	15.0	n/a	n/a	n/a
Net profit	7,053.0	2,134.0	7,406.3	7,178.0	-3.1%	236.4%	1.8%	6,732	6.6%
EPS (RUB)	2.32	0.70	2.44	2.36	-3.1%	236.4%	1.8%
EBITDA margin (%)	48.3	40.3	43.6	39.9	-376bp	-844bp	-40bp
Effective tax rate (%)	24.2	21.8	27.0	21.0	-601bp	-324bp	-80bp
Source: Novatek, Bloomberg, KBC Securities