OAO Lukoil

The frame as of 28/10/2013 (1 € = 1.34 $):

market capitalization: 36.2 € Billion vs. 53.2 € Billion (as of 31/12/2012)

What makes a P/B value of 0.68 (minus all intangible assets P/B value of 0.69)

P/E ratio: 4.5 (Price: 48.0 €; EPS: 10.61 €)

Net Margin (before extraordinary items, as reported): 8.0%

Net Margin (after extraordinary items): 7.9%

Divident yield: 4.3% (Dividend 2012 / Closing price on the 28/10/2013)

Earnings:

Lukoil is reporting a positive result for the last 5 years or more and is paying dividends for the same period as well.

The companies revenue of 100.8 € Billion in 2012 are mostly (98%) generated by exploring, redefining and distribution of oil. The income is generated by those activities as well.

The sales went to 84% to customers outside of russia.

The result in 2012 of 8.2 € Billion (including a small loss from other comprehensive of 0.01 € Billion) or 10.61 € per share.

The balance sheet:

Assets

Receivables 9%

Inventories 8%

Plant / Equipment 67%

Cash 3%

Total Assets: 74 € Billion

vs.

Liabilities

Equity 74%

Long term finanical liabilities 6%

Trade liabilities 7%

Total Liabilities: 74 € Billion

The company´s plants are depreciated to 66% while it is investing heavily (around 100% up from 2010 and three times more then it is depreciating) than it is depreciating.

 The 74% of equity do easily cover Lukoil´s long term assets. Till 2015 Lukoil has CAPEX liabilities of 2.1 € Billion compared an operating cash flow of 14.2 € Billion.

Cash Flow:

The operative generated Cash Flow (before changes in assets and liabilities) of 12.3 € Billion covers the Cash Flow from investing activities (9.8 € Billion) as their dividend payments (2.1 € Billion).

Vertical integrated group; income taxes are a critical value – while they depend on the government tax rules; exploratory costs are capitalized

The management:

 Mr Alekperov, President and stakeholder of around 20% of the company´s equity announced just in the beginning of that year (2013) that he respectively his soon will keep his stake long-term. Another 9.3% are owned by the Head of Strategy Mr Fedun.

 The free float of the companies shares is 50.00 %

Conclusion:

Cheap on a P/E basis. Sufficient margin of safety of around 30% under book value. Strong equity base and operating Cash Flow. The company´s proved reserves allow them to stay in business for more than 12 years without exploring new oil fields.

Possible threats can arise from tax legislations, disasters ala Platform “Deepwater” and a decreasing oil price.

Finally I reckon to buy Lukoil (what I will do tomorrow as well).

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