Novatek: A Falling Knife Not Worth Catching

Mar. 10, 2020 6:24 AM ETPAO NOVATEK (NOVKY), NSTKF7 Comments
Danil Kolyako profile picture
Danil Kolyako


  • Novatek showed robust operational growth in Q4.
  • The stock has fallen dramatically amid the recent market panic.
  • The gas market environment repels me from recommending buying the dip.

For the last few years, Novatek (OTC:NOVKY) (OTC:NSTKF) remained one of the most highly valued companies in Russia with a 12-15 EV/EBITDA multiple which was justified by outstanding (at least, on paper) growth prospects. However, at the beginning of the year, investors' patience started to melt, and the price war in the oil market will finally bring the stock down to earth.

The gas market will fully share the damage from the market panic as it has similar concerns: a huge oversupply and lack of demand. Cheaper oil will only deepen these problems as it will become a more competitive energy source. Hence, the gas market is going to be full of uncertainty. In such an environment, I can't call Novatek an attractive investment even at a much lower price.

Q4 And Full-Year Financial Results Highlights

In Q4, sales revenue amounted to 221 billion roubles, down 7% YoY (+17% QoQ). Low LNG prices affect the profitability of the business. Despite all efforts, the average selling price of Novatek's gas fell by more than 2 times, therefore there's no significant year-over-year growth in revenues.

Source: Company data, Author's spreadsheet

Net profit attributable to shareholders amounted to 44.5 billion roubles for the fourth quarter of 2019, an increase of 4% compared to the fourth quarter of 2018.

The company's net profit for 2019 was significantly affected by the sale of a 40% stake in the Arctic LNG-2 project and the reorganization of its joint venture, Arcticgas. For the fourth quarter, normalized profit attributable to shareholders amounted to 66.4 billion roubles (+0.3% YoY; 36.9% QoQ).

Source: Company data, Author's spreadsheet

Capital expenditures in Q4 amounted to 52.3 billion roubles, up 39% YoY (+43% QoQ). Novatek has three big projects the company heavily invests in: Obskiy LNG (the commissioning of the first train is scheduled on 2022), Arctic LNG-2 (2023), and Arctic LNG-1 (2025-2026).

This article was written by

Danil Kolyako profile picture
In the investment world, there's no lack of analysis. However, there's a catastrophic lack of sensible, unbiased, actionable analysis. I want to be one of those who change that for the better.My email: danil (dot) kolyako (at)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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