OREANDA-NEWS. November 17, 2009. Surgutneftegaz released its 9m09 RAS financials on its web-site. Its net income under RAS declined from RUB120bn in 9m08 to RUB90bn in 2009 (-25% YoY), which was a disappointment, taking into account that its 1H09 income was 6% higher than 1H08, in ruble terms, reported the press-centre of OTKRITIE Financial Corporation.

We believe Surgut’s financials were negatively affected by the ruble appreciation in 3Q09 and the company posted a sizable forex loss on its investments, part of which is dollar-based. On the positive side, we estimate that Surgut’s net cash position increased by more than US 560m in 3Q09, which puts total cash and investments at approximately US19.3bn at the end of September 2009.  

View: As the ruble appreciates against the dollar in 4Q09, the company is likely to show weak earnings and we anticipate its full-year income under RAS to be 25-35% lower than in 2008. In essence, the annual dividend for 2009 is also likely to decrease from last year, unless management decides to match 2008. A 30% YoY dividend drop would translate into RUB0.42/share per common and RUB0.93 per preferred share. Based on the current share prices, this would deliver dividend yields of 1.6% and 6.9%, respectively. Although investors probably did not have high hopes for Surgut dividend growth YoY, we believe that the adverse forex effects on RAS profit are quite disappointing. 

Valuation and Action: Our rating and TP on Surgutneftegaz have been suspended.