Rosneft Lowered to ‘Hold’ at Troika as Capital Spending Rises
February 08, 2012, 8:32 AM ESTBy Jake Rudnitsky
Feb. 8 (Bloomberg) -- OAO Rosneft, Russia’s biggest oil producer, was cut to “hold” from “buy” at Troika Dialog, which said high capital expenditures in the next three years may cut into cash distributions to shareholders.
Rosneft plans to invest $15.5 billion this year, including $8.6 billion in upstream spending, Moscow-based Troika said in a research note today, citing a Rosneft meeting with analysts.
“The next two to three years may not be impressive on the free cash flow level and we have difficulty finding catalysts for the stock amid elevated capex levels,” said the analysts, Oleg Maximov, Alex Fak and Valery Nesterov. A “very unbalanced strategy of investment versus distributions to shareholders” is a “sin so familiar in the Russian oil and gas sector.”
Troika, which lowered Rosneft’s target price to $8.50 a share, also cited the stock’s “recent” strong performance. The stock has gained 41 percent since last year’s Oct. 4 low to close at $7.48 yesterday in London. In Moscow, Rosneft climbed 1.1 percent today to 226.30 rubles ($7.60) at 12 p.m.
Rosneft didn’t provide detail on the expected “significant” increase in spending on refining and retailing through 2014, Troika said. The oil producer gave “good news” about dropping plans to build a Primorsk refinery in favor of a petrochemicals facility. That plan also benefits OAO Transneft, the oil pipeline operator, by removing the need to build a link to a refinery.
--Editors: Torrey Clark, Will Kennedy
To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
