What's wrong with the company, what risks do investors see and why they don't buy Tatneft shares?
PJSC shares “Tatneft”PJSC shares “Tatneft”
PJSC TATNEFT is one of the largest vertically integrated oil companies in Russia in terms of oil production, proved oil reserves and refining capacity. The main activity of the Group is exploration, development, booty, refining and marketing of crude oil and petroleum products.
27 August, Tatneft released its financial statements under IFRS for the second quarter and the first half of the year 2021 of the year.
According to the report, net profit in the first half of the year 2021 G. compared to the same period 2020 G. increased by 115% and made 92,23 billion. rub. The main factors, influencing this growth, were mainly higher prices for oil and oil products in the first half of the year 2021 G.
Revenue for the same period increased by 70% and amounted for the first half of the year 2021 G. 568,88 billion. rub. The increase in revenue was driven by higher average selling prices across the board, as well as higher volumes of oil sales. Obviously, what in comparison with the crisis 2020 G. indicators of Tatneft, like other large oil companies in Russia, much better due to the recovery in oil prices, as well as a gradual increase in production by easing the restrictive measures of the OPEC + deal, which was achieved last year in order to avoid an oversupply of oil and oil products on the market.
Comparison of the results of the first half of the year seems to be more objective. 2021 G. with the same period 2019 G., ie. with pre-pandemic results.
Compared to the first half of the year 2019 G. revenue of Tatneft increased by 26,5%, at the same time, the profit of the company's shareholders decreased 20,1%. Revenue is growing, and the profit falls, therefore, the main concern is the decline in the company's profitability with 25,7% in the first half of the year 2019 G. to 16,2% for the same period 2021 G.
The main factor, negatively affecting the level of profitability of the company and, which the, probably, will influence in the future, is the termination of the benefits for the tax on the extraction of minerals from 1 January 2021 of the year.
In October 2020 year, the Tax Code of the Russian Federation and the Law "On Customs Tariff" were amended, as a result of which with 1 January 2021 tax incentives for the severance tax for the production of extra-viscous oil are canceled and there are no special formulas for calculating the rates of export customs duties for extra-viscous oil. The share of super-viscous oil in Tatneft's production structure is the most significant among all large Russian oil companies.
For example, expense item «taxes, except for income tax "in the report for the first half of the year 2019 of the year was 152,06 billion. rub. with proceeds 449,66 billion. rub. (share in revenue - 33,8%). According to data for the same period 2021 G. – 228,80 billion. rub. And 568,88 billion. rub. respectively (share in revenue - 40,2%). See, that the company began to pay much more taxes, than in 2019 G. Assuming, that the share of the item "Taxes, except for income tax "in the revenue would remain unchanged, then it would be about 192,28 billion. rub., What's on 36,52 billion. rub. less, than Tatneft actually paid in the first half of the year 2021 G. This is a significant load on the company's net profit..
Concerning, Tatneft Board of Directors upset shareholders 26 August recommending a dividend of 16,52 rub. per ordinary and preferred share for the first half of the year 2021 G. The recommendation is in line with the dividend distribution policy 50% of net profit under RAS. However, investors expected a return to distribution 100% from profit, how Tatneft did it before the pandemic, in connection with the recovery of the world economy, rising oil prices, as well as an increase in oil production.
Shares on the day of the dividend announcement fell by 4,5% and since then they have kept at local minimum values. However, despite the unjustified expectations of investors on dividends, the company's annual dividend yield may well reach 9% per annum at current prices due to high oil prices and increased production.
Considering the tax pressure on Tatneft's financial performance, distribution of profits in accordance with the dividend policy is seen in the current conditions as a reasonable and compromise option between the interests of the company, state and shareholders.
Further growth prospects of the company's financial performance, capitalization and dividend payments depend on the government's policy in terms of revising tax incentives for the production of extra-viscous oil, as well as the policy of the company itself, which, according to the latest news, is considering a transition from oil production to refining.
TATNEFT may completely abandon the sale of crude oil and switch to full processing of all production. This opinion was expressed by the President of Tatarstan, Rustam Minnikhanov, chairman of the board of directors of the company, speaking at the oil summit of the Republic of Tatarstan, which took place in July this year.
This transition could have a positive impact on the company's margins and profitability due to the higher added value of refining compared to oil production..
Making a conclusion, one might say, that the only internal risk for the company at the moment is the additional tax burden and low profitability of extra-viscous oil production. In turn, there are prospects in the form of a reorientation from oil production to refining with a higher margin., possible revision of tax breaks and even mergers and acquisitions of other companies, although the latter is still a rumor. But the company does not distribute all profits in the form of dividends., which means he is saving money for something.
As follows from the last post about buying shares on IIS, I am not against buying in addition shares of Tatneft. Shares already take into account all the risks and the amount of dividends in the price. And the prospects will be reflected in the price only as they are realized., but this is unlikely to happen in the short term.
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