Surgutneftegaz (RTS: SNGS) released H107 RAS financials. Russian Accounting Standards do not allow performing a reliable valuation of a company’s financial standing. However, Surgut consolidates around 90% of RAS profit on the parent company’s balance sheet which enables us to make important conclusions about the company’s financial standing. In addition, Surgut drafts no IAS or US GAAP financials. Therefore, the RAS report remains the only document which reflects the company’s financial standing for investors.
The company’s revenue rose 10% y-o-y to Rub 293 bln ($1.43 bln) in H107. Net profit dipped 17% in this period to Rub 39 bln ($1.52 bln). Surgut’s earnings climbed, although the ruble appreciation remained in place and average crude price in this period dipped. The average price of Brent crude amounted to $63.2 a barrel, while this value was $65 a barrel in the same period last year.
Surgut’s RAS financials, Rub bln
| Indicator | H107 | H106 | H107/ H106 | Q207 | Q206 | Q207/Q206 |
| Revenue |
293 |
267 |
10% |
185 |
151 |
23% |
| COGS |
222 |
167 |
33% |
135 |
96 |
41% |
| Gross profit |
71 |
98 |
-28% |
50 |
53 |
-6% |
| Gross profit margin |
24% |
37% |
-12% |
27% |
35% |
-8% |
| SG&A |
15 |
13 |
15% |
8 |
7 |
14% |
| Net profit |
39 |
47 |
-17% |
31 |
26 |
19% |
| Net profit margin |
13% |
18% |
-4% |
17% |
17% |
0 |
Source: Company data, Finam estimates
COGS spiked 33% y-o-y from Rub 167 bln ($6.51 bln) to Rub 222 bln ($8.66 bln) in H107 and outpaced revenue as a result of a rise in electricity tariffs, depreciation withholdings and payrolls. The company’s gross profit dipped 28% in H106 from Rub 98 bln ($3.82 bln) to Rub 71 bln ($2.77 bln). Gross profit margin softened 12% and net profit margin 4%. Gross profit margin softened deeper than net profit margin due to a 30% increase in the “other profit” line item, while the “other expenses” line item grew 16%.
Although the company’s topline growth was stronger than that of its domestic industry peers, we view the oil company as moderately negative due to softer margins. It is difficult to estimate the reasons behind this trend, since the company is opaque. At present, we have no formal recommendation on Surgutneftegaz shares.
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