Gazprom shows positive results in Q2

Gazprom's second-quarter performance surpassed our expectations and the consensus forecast. However, we assess the entire statement as neutral. Despite the fact that the EBITDA indicator surpassed our forecasts, this was mainly achieved due to the liquid hydrocarbons sales business, while the gas business still looks fragile. A slight increase in gas prices in the second quarter versus the same period last year partially offset the sales volumes reduction. Nevertheless, the current level of gas prices is lower than we expected.

The negative cash flow in the second quarter also came as no surprise - the anticipated fall occurred after an upswing in the first quarter. The behavior of this indicator in the second half of the year will depend on the amount of capital investments, however it is already evident that they will be rather high as Gazprom is planning to intensify its efforts within the Eastern Gas Program.

The EBITDA margin is higher than we expected, which is explained by high net receipts in the processing segment. The amount of Gazprom's operating expenditures in the second quarter is below the expected level mainly due to other expenditures. This is an unpredictable item and there are no guarantees that this trend will be retained in the next reporting period.

Gazprom's statements appeared to be better than we expected, but relatively weak in terms of the absolute figures - the Company failed to create a positive free cash flow, and its capital investments significantly increased.

In the second quarter the Company's receipts decreased by 2.4 per cent, following a decrease in receipts from gas sales as well as a negative effect caused by retroactive payments to European consumers.

The EBITDA decreased by 6 per cent, and that fact reflected, first of all, a quick rise in severance tax expenses - these in return rose by 44.2 per cent during the year, i.e. to RUB 95.3 billion. However, the EBITDA turned out to be 9.2 per cent higher versus the consensus forecast and 8.2 per cent higher versus our expectations - that became possible due to positive changes in the inventories of finished products and work in progress.

Gazprom's net profit fell by more than 50 per cent during the year, owing to the negative effect of retroactive payments and losses from exchange rate changes. But that figure exceeded our estimates by 4.2 per cent, and the consensus forecast - by 7.4 per cent due to the unpredictable inventory gains.

In the second quarter Gazprom channeled RUB 338.3 billion to capital expenditures (28 per cent more as compared with the yearly amount) and rounded off the quarter with a negative free cash flow.

Gazprom showed positive results in the second quarter. EBITDA almost met our expectations, but was higher than the consensus forecast, and that proved to be a benefit. Meanwhile, for the first time ever that figure was higher in the second quarter if compared with the first one, as far as I can recall. That happened mainly because of the non-recurrent items. In the first quarter great changes occurred in the balance of final products (because of huge gas volumes injected into UGS facilities), while in the second quarter that figure went down and caused a positive effect on the Company's expenses.

Besides, in the second quarter Gazprom gained income from positive currency translation differences versus losses in the first quarter.

In the second quarter the Company's proceeds decreased because of the downfall in sales and prices. In the second quarter market prices were lower than we had anticipated, and that could be treated as a slightly negative point.

Overall, Gazprom showed good results in the second quarter against the background of the first one. However, it resulted in a moderate effect on Gazprom shares as the Company's statements are published quite late.