Lukoil - 1Q09 numbers beat market consensus

Lukoil reported better-than-expected numbers for 1Q09 yesterday. US GAAP net income came in at US$ 905m for 1Q09, down 72.2% y/y and versus a loss of US$ 1.62bn in 4Q08. Bottom line came in 2.8% above the consensus forecast of US$ 880m (reported by Bloomberg) but 2.2% lower than our own forecast of US$ 925m. EBITDA stood at US$ 2.53bn, down 47.6% y/y and versus a negative US$ 393m in 4Q08. The final figure exceeded by 15.3% the Bloomberg consensus estimate of US$ 2.19bn and by 16.5% our own forecast of US$ 2.17bn. In our view, the better-than-expected operating profits are mainly attributed to lower-than-forecasted operating expenses as well as export and excise payments. Overall structure of results looks healthy but generally expected, in our view. The stock price did not really react to the announced figures due to generally negative market sentiment after crude price fell 1.4% intraday. We still see a good value in the stock. On 2009F P/E Lukoil trades at 6.2x, substantially below its Russian and international peers. Given the firm’s relatively integrated and low-risk business model, we believe a valuation premium to the Russian oil sector is warranted.

Revenues amounted to US$ 14.75bn, down 41.2% y/y and 17.9% q/q. The figure came 4.6% above the consensus forecast of US$ 14.1bn and 3.6% above our own forecast of US$ 14.2bn. Despite falling crude oil prices the crude oil sales went actually up 2.0% q/q to US$ 3.77bn (down 38.4% y/y) due to unexpected increase in sales volumes. The latter went up by 13.4% q/q and 26.6% y/y driven by increase in the European sales. Refined product sales declined by 26.1% q/q to US$ 9.8bn (-43.3% y/y) burdened by lower product prices and selling volumes.

Total costs amounted to US$ 13.2bn (-36.7% y/y and -31.2% q/q) still 2.8% above our own forecast of US$ 12.9bn. The company’s COGS exceeded our forecast due to the higher-than-expected crude oil purchases, which could be explained by higher trading activity of Lukoil abroad. Operating expenses were supported by US$ 345m gain on inventories revaluation. Excise and export tariffs line profited from lower excise tax payments due to lower fuel products sold internationally and in Russia. As expected, effective MET rate was below the historical levels due to a positive effect from the zero tax rate for crude produced in Nothern Timan Pechora, which saved the company US$ 300m. Similar to Rosneft, weakening Rouble against the US Dollar resulted in sharp reduction of operating and general expenses. Since Rouble has strengthened QTD, we this positive impact to be reversed in the coming quarters. The same is true for taxes and export duties, which should increase in 2Q09 following the rise in crude oil quotes.

Financials came in at US$ -141.0m, down 82.0% q/q and versus a financial gain of US$ 103m in 1Q08. The actual figure came 52.2% above our forecast of US$ -295m due to lower-than-expected FX losses. The company reported a visible increase in interest expense from US$ 132m in 4Q08 to US$163m due to increase of its net debt position during the first quarter.

Tax payment stood at US$ 390m in 1Q09, down 61.5% y/y and versus a tax reversal booked in the fourth quarter. As a result effective tax rate stood at 26.0% versus our expectation of 20%. According to the company, the high level of the effective income tax rate in the first quarter of 2009 was attributable to the effect of currency translation gains in Lukoil’s Russian subsidiaries, and recognition of a valuation allowance in amount of $40 million related to tax loss carryforwards in its international segment.

Source: Lukoil, Bloomberg, KBC Securities