Daily analyst comments

Novatek (RTS: NVTK) released consolidated interim abridged IAS financials for Q307 and 9M07. The company posted significant revenue growth in the reporting period due to higher hydrocarbon sales and higher average selling price. In Q307 natural gas sales dropped y-o-y due to lower sales to traders. In H107 opex grew stronger than revenue, while the company managed to reverse the situation in Q307. At present earnings growth outpaces costs.

Novatek's IAS financials, $ mln

	9M07	9M06	9M07/9M06
Revenue	1,759	1,363	+29.0%
Opex	1,047	817	+28.1%
Operating profit margin	40%	40%	+0.4%
Profit before income tax	454	346	+31.5%
Net profit	529	414	+27.9%
Net profit margin	30%	30%	-0.3%

Source: Company data, Finam estimates

However, a rise in non-operating expenses due to higher expenses on losses for exchange rate differences impacted net profit margin, which softened 0.3%. In H107, net profit margin dipped 1.1%. We believe that in FY07 the company will strengthen net margin. Novatek's capex climbed more than 4-fold, which could impact the company's financials longer term.

Hydrocarbon sales

	9M07	9M06	9M07/9M06
Natural gas (mln cu m)	23,480	22,614	+3.8%
Stable gas condensate (th tons)	1,210	1,026	+17.9%

Source: Company data, Finam estimates

We view 9M07 financials as positive, since they showed a turnaround in a trend of robust cost growth compared to revenues. That said, an upsurge in capex could take a toll on the company's financials.

At present we have no recommendation on Novatek shares.