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Norvik Research 11.05.2017

11/05/2017 14:14

Global developments

Global stocks advanced with a rebound in oil prices. Asian stocks are rising: CSI 300 is 0.6% higher while Nikkei 225 is 0.3% up. S&P 500 futures are marginally lower after the benchmark index rose 0.1% yesterday while Eurostoxx 600 is slightly down. The dollar index is 0.1% lower. US 10Y Treasury yields are 2 bps lower at 2.39%.

Oil prices rose due to declined US crude oil inventories. US crude oil stockpiles fell 5.3 mn bbl in the previous week against consensus of a 2.0 mn bbl decline. While signals from OPEC and non-OPEC countries are clear that they will likely extend production cuts, concerns are mounting about the pace of rising US supply. Brent prices are up 1.2% today at $50.8/bbl after rising 3.1% yesterday.

Russia and CIS area developments and market colour

CBR can start buying FX after achieving a 4% inflation target. CBR’s Governor Nabiullina said in a written interview with a PR company “EM” that CBR will consider replenishing FX reserves after reaching inflation target only if the markets are stable and if purchases do not affect the exchange rate. Notably, she stated that CBR sees space to reduce the key rate in a state of equilibrium with nominal interest rates at 6.75% and inflation at 4.0%.

Corporate news

Major corporate news during the past week are linked to Rosneft and AFK Sistema. On May 2, Rosneft and Bashneft filed a lawsuit against AFK Sistema and its subsidiary, Sistema-Invest, for 106.6 bn roubles ($1.9 bn) in Moscow Arbitration Court. The claim covers alleged damage to Bashneft, which Sistema owned through 2014. The court did not publish any details, but according to people in Rosneft, the claim refers to reorganization of asset structure as well as possible transfer of those assets. As news broke, AFK Sistema’s shares tumbled 36.5% in one day. At the start of the week, we saw a price correction, but at today’s session, the decline continued. Yields of Sistema’s 2019 Eurobond spiked, and currently it trades at YTM of 4.0%. On May 10, the Moscow Arbitration Court dismissed the claim, and referred it to the incorporation region of the party affected, Bashneft – Bashkortostan.

Apart from the claim against AFK Sistema, both Rosneft and Bashneft reported 1Q 2017 results. Bashneft’s net income fell 39.1% YoY to 8.785 bn roubles, while sales reached 157.192 bn roubles (+20%). Net income of Rosneft rose 8.3% to 13 bn roubles. Revenue rose 34.5% and amounted to 1.41 tn roubles. EBITDA stood at 333 bn roubles (+22%). EBITDA margin at 23% is among the highest in the sector (ExxonMobil – 16%, Chevron – 20%, Statoil – 40%). Also, Rosneft is by far the largest hydrocarbons producer among public companies. During 1Q 2017, the company produced 521 mn boe, an increase of 9.8% YoY.

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