Tense Geopolitical Atmosphere
With news this week that the US House of Representatives overwhelmingly voted to impose new sanctions on Russian-European pipeline plans in a bitter revenge against the alleged involvement in the 2016 US Presidential Election, a buy recommendation for the quasi-public behemoth Gazprom may seem strange. The US shale boom has offered an alternative for European energy importers, with plans to import natural gas across the Atlantic to new liquefied natural gas terminals on European coastlines. However the reduced reliance on Gazprom as a supplier to Europe has presented an opportunity to diversify.
In May 2014, Gazprom signed up to supply China 38 billion cubic metres of natural gas per year from December 2019 in the Power of Siberia scheme and experts suggest China may need up to 300 – 400bcm by 2020 to serve their energy needs, offering further demand for Gazprom’s gas. The new 2200km line will be completed in 2018 and connects the Chayanda gas field with the Chinese-Russian border in the east.
In addition Gazprom has smaller but certainly high potential deals with new developing markets in the APR such as India. Approximately one million bcm /year of LNG will be supplied to India by Gazprom in 2018 but this figure could grow substantially over time as India’s energy needs grow.
Fundamental & Technical Analysis
The first thing to note about Gazprom is that with a P/E (TTM) of 2.89 compared to an average of 15.39, Gazprom’s share value could be undervalued considering the potential of its expansion in the APR. Furthermore, Gazprom currently has a comparative advantage over its industry competitors. With a Gross Profit Margin Ratio (TTM) of 62.17 versus the industries 43.23 multiple, we can see that Gazprom is very profitable even in a low cost/increasing competition energy market.
In terms of technical analysis, the MACD momentum indicator suggests the market was bullish in the opening quarter of this year, but has been bearish since. However, during July 2017 there has been a convergence to the signal line. Investing in Gazprom soon is the strategy - just as the market shares the sentiment of a positive, bullish outlook for Gazprom’s prospects.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.