Wednesday 23 April 2014

Analysis of Novatek

A Russian gas company

Company: Novatek

Business: A Russian gas company. They are active in four fields with their gas and liquid hydrocarbons and those are: Exploration & Production, Processing, Storage & Transport and finally Marketing.

Active: Yamal-Nenets Autonomous Region (all their exploration and gas fields are there) and Russia which they support with 16% of their entire gas demand. They are actively selling products to Europe (large contract with Germany), the US and China.

P/E: 9.4

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of Novatek is very nice with 9.4 but the P/B is too high for me with 2.8 and this also gives us a nod of disapproval from Graham. The earnings to sales are excellent with 37% and the ROE is spectacular with 30%! The book to debt ratio of 1.7 is also great. In the last five years they have had a yearly growth of +27% which is very, very high and one wonders how long it can keep going like that... still this gives us a broad motivated P/E of 30 to 50 which means they are highly undervalued by the market today. They pay a dividend that is small but still ok with 2.1% and it only represents 20% of their earnings so they should be able to keep that coming.

Conclusion: Graham says no and I really like the yearly growth rate and the ROE. There seems to be a lot of Russian companies that have had spectacular growth rates in the last couple of years. The P/E is also excellent but the P/B is too high for me so I will pass on this one for now...

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