The cost of Rosneft shares during trading on March 9 once again hit historic highs. On the Moscow Stock Exchange, the company’s capitalization amounted to almost 6.2 trillion rubles, with a record price of securities of 581.45 rubles per share. On the London Stock Exchange, Rosneft’s capitalization exceeded $ 82 billion for the first time, with a GDR value of $ 7.78 per share.
On the eve of the Morgan Stanley investment bank raised the target price of Rosneft to $ 9.2 per GDR (by 31 percent, which was the strongest increase among competitors). The bank gave a BUY recommendation for the company’s shares.
This assessment of the investment bank implies that Rosneft shares have high growth potential, and the target price may be revised again in the near future.
The key factor behind the increase was the change in long-term forecasts for oil prices (from $ 47.5 to $ 50 per barrel), mid-term forecasts of the Company’s financial indicators (EBITDA, net profit and dividends), as well as the inclusion of Vostok Oil in the assessment of Rosneft (+1 USD per GDR).
In addition, the bank raised its forecasts for the financial performance of Rosneft in 2021-2023: EBITDA growth by 9-14 percent, an increase in true profit by 19-25 percent – this is higher than the average for the sector (EBITDA + 5-9 percent, net profit + 11-17 percent).
According to the dynamics of quotations, Rosneft has already surpassed all its competitors. At the same time, the bank believes that in the short term, even from current levels, the company may show outstripping growth dynamics compared to Gazprom and Lukoil. Currently, with a Brent price forecast of $ 58 a barrel, Rosneft is offering a dividend yield of about 11 percent, well above its historical average of 7 percent, the bank’s analysts read.
At the moment, Morgan Stanley has included only a part of Vostok Oil in its target price, which led to an increase in the target price by $ 1 per GDR. If the NPV of the Vostok Oil project is fully included in the company’s valuation, the share price may increase by $ 3.1 per GDR, which is 70 percent of Rosneft’s capitalization as of October 2020, when the project began to be actively marketed. It should be noted that the estimate was made on relatively conservative assumptions, including the forecast for oil prices of $ 50 per barrel.