Like any other O&G company, Lukoil (LUKOY) is facing a tough time. The implementation of strict lockdowns all around the world decreased the demand for oil and as a result, the value of the commodity plummeted in the last couple of months. However, as movement restrictions are being eased, the price of oil slowly starts to return to its previous levels and it currently trades at its 2-month high. Unlike other major oil producers, Lukoil has enough resources to weather this volatility as its books are not overleveraged and it has one of the best profit margins in the industry. As a shareholder of Lukoil, I’m confident in the company’s ability to create value in months to come, as the demand for oil slowly starts to rebound. Right now, the company’s P/E ratio of 5x is below the median P/E of 11.86x and I consider the stock to be an attractive investment at the current price.
The New Oil Order
After the agreement to cut the oil production was reached at the OPEC+ Summit a month ago, Lukoil, as a Russian entity, was required to also cut down its production. As a result, the growth of crude oil production in the recent month was nearly zero and it’s expected to decrease in the near term. Also, due to the low prices for oil, Lukoil decided to reduce the drilling on its fields in Perm and Siberia by 20%.
However, Lukoil’s latest earnings report didn’t disappoint the company’s investors. While revenues in FY19 declined by 2.4% Y/Y to ₽7.8 trillion (~$107 billion), the company managed to increase its net profit by 3.4% to ₽640.18 billion (~$8.8 billion). Sales during the period also declined, but the FCF was up 26.4% Y/Y and the company’s EBITDA increased by 10.9%. Currently, Lukoil doesn’t have an FY20 guidance which makes sense considering the uncertainty and the volatility of
