OAO Rosneft, Russia’s largest oil company, will lag behind OAO Lukoil (LUKOY:US) in the stock market as expansion plans boost debt, Renaissance Capital Ltd. said.
Shares of Rosneft will gain 13 percent in Moscow in the next 12 months, about half the advance projected for Lukoil, Russia’s biggest non-state oil producer, according to analysts estimates compiled by Bloomberg. Rosneft futures expiring in September fell 0.3 percent in U.S. hours, while American depositary receipts of Lukoil added 0.1 percent yesterday. The Bloomberg-Russia-US Equity Index of the most-traded Russian stocks in New York was little changed after a two-day slump.
State-run Rosneft plans to supply more than 2.6 billion barrels of crude oil to China National Petroleum Corp. over the next 25 years, while stepping up Arctic exploration and starting to export liquefied natural gas in 2018. The acquisition of BP Plc (BP/)’s joint venture in Russia in October sent its net debt to earnings ratio to 3.27, which compares with a 0.2 level for Lukoil. Fitch Rating raised Lukoil’s credit rating last week.
“Rosneft has a good asset base, but its ambitious strategy is aimed at too many very large-scale projects,” Ildar Davletshin, an analyst at Renaissance Capital in Moscow who has a hold rating on Rosneft and recommends buying Lukoil, said in a telephone interview yesterday. “Lukoil is a defensive play with a clearer strategy. The management is committed to creating shareholder value.”
Lukoil reversed a drop in Russian oil output and has an “ambitious but flexible” capital spending plan of $50 billion through 2015, Fitch Ratings said on Aug. 21, when it raised the company’s grade by one step to BBB, the same as the sovereign. Rosneft, Russia’s largest oil company, and OAO Gazprom, the world’s biggest gas producer, have a combined investment plan of $62 billion for 2013 alone as they pursue projects backed by President Vladimir Putin.
A weaker ruble is cutting costs for most of Russia’s oil and gas exporters, while rising oil prices boost revenues, according to Luis Saenz, head of equity sales and trading at BCS Financial Group in London. Rosneft is benefiting “the least” because of its high leverage, he said by e-mail.
Russia’s currency weakened to the lowest level in four years earlier this month, while crude oil surged to a two-year high in New York yesterday.
The 12 percent plunge in Rosneft this year drove its price to 6.4 times estimated earnings, compared with Lukoil’s valuation of 4.2, according to data compiled by Bloomberg. The stock is still cheaper than global peers Exxon Mobil Corp. and Petroleo Brasileiro SA, which trade at valuations of 11.3 and 7.3 respectively.
“I prefer Rosneft to its usual comparison Lukoil because it has state-backing and lots of exploration and production upside in the Arctic and East Siberia,” Julian Rimmer, a trader at CF Global Trading UK Ltd. in London, said by e-mail.
The Bloomberg Russia-US gauge rose less than 0.1 percent to 90.80, after slumping 2.2 percent in the previous two days. OAO Surgutneftegas (SGTPY:US) led gains in the measure, surging 2.8 percent to $6.67 in the biggest rally in two months.
ADRs of OAO Rostelecom, (ROSYY:US) Russia’s biggest fixed-line operator, posted the biggest decline among Russian shares traded in New York after Bank of America Corp. cut the stock to the equivalent of sell. The shares slid 1.6 percent to $19.65 to trade at a 0.3 percent discount to its Moscow stock.
The Market Vectors Russia ETF (RSX:US), the largest dedicated Russian exchange-traded fund, fell 0.2 percent to $25.84. The RTS Volatility Index, which measures expected swings in the stock futures, rose 0.6 percent to 24.59, while futures on the RTS Index expiring in September lost 0.2 percent to 129,550 in U.S. hours.
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