On March 28, news came out that Rosneft sold one of its main and significant assets abroad - oil companies in Venezuela (Petromonagas, Petroperija, Boqueron, Petromiranda and Petrovictoria) and oilfield services. At the same time, according to media reports, the buyer of assets was the Russian Federation represented by the state company Rosneftegaz. Publications such as Bloomberg and Reuters wrote about the deal.
The main strategic goal of the sale is the cutting of sanctions on Rosneft subsidiaries by the United States due to the trade in Venezuelan oil. Indeed, the company’s shares have become unattractive for Russian and foreign investors due to the imposition of sanctions by the United States and the high likelihood of additional sanctions in the future, which could adversely affect financial results and stock prices.
The conclusion of this transaction is a true and positive decision for three reasons:
- The opportunity of cutting US sanctions on the Rosneft group of companies, which will technically lead to an influx of investors in stocks and an increase in quotations.
- The Assets were sold through the exchange of the share of Rosneft shares - 9.6%. It is assumed that the state company Rosneftegaz is giving this stake, and its effective share in PJSC Rosneft will decrease from 50% + 1 share to 44.3%, i.e. the state will lose direct control over the company, which will be positively accepted by investors.
- The valuation of the asset package being sold is rather high, which implies a fair value of Rosneft shares at 330-350 rubles / share. This may lead to a review of analysts’ recommendations for this stock and an increase in its market price.
However, there is a significant drawback of the transaction in this period: stocks of the oil and gas sector in the world are under great pressure from oil prices in the last 30-60 days, which will not allow stocks to grow fundamentally and return to 400-450 rubles per share. Additionally, the market and investors are now more concerned about the spread of the coronovirus and the trends in the growth of cases and deaths from it. In a calmer period, this transaction would be very positive for the market, in the current realities - rather neutral and positive in the short term.
We believe that the shares of Rosneft may be an interesting and attractive investment idea for a long-term horizon of 6 months or more. The company began to pay dividends generously (dividend yield may amount to 8.5–9.0% for 2020), is trying to mitigate the risks of US sanctions and be more open. Our long-term rating for the company is BUY. In the short term, we believe that, like other shares in this sector, Rosneft can be a very risky asset. We remind you that the current share price is 321 rubles per share with a negative supply price for Russian oil (including netback), the March 2020 low is 235 rubles per share with a positive supply price 23% higher than the current level.