Transneft is due to report its 4Q18 IFRS results today. Starting from this quarter, we expect to see a noticeable impact from the consolidation of NCSP on the company's financials. We forecast revenues up 17% YoY at RUB 264bn, with EBITDA adding 23% YoY to RUB 112bn. The strong bottom line results this quarter are to support dividends for 2018. Therefore, with our net income forecast of RUB 48bn we expect RUB 10,260/share in dividends for FY18F (5.9% DY) under 50% of IFRS adjusted net income payout. Our unchanged 12-month Target Price for Transneft prefs is RUB 225,000, implying an ETR of 34%: Buy reiterated.
Solid growth in revenues. We expect Transneft to increase revenues from export deliveries 13% YoY to RUB 100bn in 4Q18 thanks to the 3.7% YoY growth in volumes transported and an 8.6% YoY increase in the average export tariff, on our numbers. Domestic transportation revenues are to fall 2% YoY to RUB 64bn, due to the lower average transportation distance, we believe. However, the key growth in revenues is to come from the increase in revenues from crude sales to China (+24% YoY to RUB 53bn, reflecting the 26% YoY growth in the rouble crude price) and from the company starting to consolidate NCSP’s results, which added RUB 15bn in revenues in 4Q18F. As a result, we forecast total revenues to grow 17% YoY to RUB 264bn in 4Q18F.
Stronger EBITDA following NCSP consolidation. We forecast Transneft’s operating expenses to increase 12% YoY following the consolidation of NCSP and given the higher YoY costs of goods for resale. Consolidating NCSP is set to have the highest impact on staff and administrative costs (we see them up 8% YoY). The cost of goods for resale is to be driven by the 26% YoY higher Urals price in RUB under broadly flat contract volumes. Therefore, the total cost of goods for resale grew almost a quarter to some RUB 55bn, we think. Overall, we believe the company’s EBITDA is to add 23% YoY to RUB 112bn in 4Q18F (including the effect of NCSP consolidation).
Bottom line to support dividend forecast. Below the operating level, we expect to see interest income gains down 75% YoY due to the high base effect (a one-off in 4Q17), partially offset by the negative minority interest amid the NCSP 60.6% stake consolidation. Moreover, we do not expect any significant negative other income items to squeeze the bottom line compared with 4Q17, when the company reported a loss of RUB 21.6bn related to other activities. Thus, we forecast net income strong at RUB 48bn, or up almost double YoY. As a result, we forecast total dividends for FY18F at RUB 10,260/share under a 50% of IFRS adjusted net income payout, which implies a 5.9% DY.
Transneft 4Q18F IFRS preview
RUB mn 4Q17 3Q18 4Q18F, VTBC Chng, QoQ Chng, YoY
Revenues 226,535 252,706 264,091 4.5% 16.6%
EBITDA 90,858 106,577 111,702 4.8% 22.9%
Net income 25,093 78,967 48,334 -38.8% 92.6%
Source: Company data, VTB Capital Research
Transneft (TRNFP RX, RUB)
Buy (30 Oct 2017, 07:10 UTC) // Previous: Hold (23 Dec 2013, 15:12 UTC)
Target price, 12mo: 225,000 // Price: 175,950 // Upside: 28% // DY: 6.4% // ETR, 12mo: 34%