Gazprom: Ideally Positioned on Its Price Chart

Buy-recommended Gazprom (OGZPY.PK) offers unlevered appreciation potential of 36% to estimated net present value [NPV] of $72 a share, concentrated 79% on natural gas and 21% on oil. Third quarter results released on February 15 exceeded expectations with the positive surprise in oil.

Earlier on December 18, we increased NPV from $62 a share when we increased long-term oil price for calculating present value to $80 from $66 a barrel. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda). NPV is supported by projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Understated cash flow anticipates a natural gas price in 2008 of $3.61 a million btu, less than half the futures price and a fourth or less compared to the oil equivalent.

Gazprom stock seems ideally positioned on its price chart, offering the short-term bargain of being priced below the 60-day average, at the same time it has positive medium-term momentum of being priced above its 200-day average. Meanwhile, the industry backdrop continues to be supportive with an uptrend for oil price and catch up potential for natural gas.

Originally published on February 18, 2008.

Comments

[adamnb]

I agree that Gazprom is seriously undervalued. The same is true for nearly all Russian energy stock when compared to its peers. Consider Rosneft with reserves equal or greater than PetroChina, with shares selling at only one eighth the price. Lukoil also is a great bet.