Департамент торговых идей

Kazakhtelecom signed an agreement with Tele 2 A.B. to acquire a 49% stake in the JV Tele2-Altel. Earlier at the end of 2018, Tele 2 A.B. notified of the early exercise of the put option in the JV Tele2-Altel in connection with the transaction related to the acquisition by Kazakhtelecom of a 75% stake in Kcell. According to Tele 2 A.B., the net proceeds of the buyout of the share of the JV Tele2-Altel including an earn-out liability of Tele 2 A.B. to Kazakhtelecom will be ~ KZT63 877bn (or USD 169mln). Kazakhtelecom will also repay a shareholder loan to a Swedish company in the amount of KZT80bn. The company plans to complete the transaction at the end of June 2019.

According to the results of 1Q2019 Nostrum's revenue was $95.4mn, an increase of 7% yoy due to higher sales in 1Q2019 in relation to 1Q2018 (+2.4%) and despite the relatively weak oil prices in the reporting period (-5% y/y).

Following the 1Q2019 results, Gazprom Neft is demonstrating an increase in its key financial indicators.

Polymetal’s shares showed strong growth at the end of 2018 due to the backdrop of a positive trend in gold prices, a slowdown in the interest rates of the Fed and turbulence in stock markets. However, the worsening forecasts for the growth of the global economy, geopolitical conflicts and the expectation of positive results of trade negotiations between the United States and China had a negative impact on the value of precious metals and on the Company's share prices, which had been falling since the beginning of 2019. Based on this correction, as well as the stable fundamental and production results of Polymetal for 2018, we note the Company's investment attractiveness and the ability to generate positive cash flows, which bring significant profits to shareholders in the form of dividends. Considering the Company's focus on high-grade assets and an increase in the resource base, we raise our recommendation from Hold to Buy Polymetal and 12M TP from 860 GBp/share to 940 GBp/share.

At yesterday's meeting the Board of Directors of Lukoil recommended reducing the charter capital of Lukoil through acquisition of a portion of issued shares in order to reduce the total number thereof.

In January-April2019, the STEI reached 4.1% yoy, which is lower than in 2017 (5.4% yoy) and 2018 (5.0% yoy) the same period. According to our estimates, commodity sector’s contribution to the STEI, including transportation and sales of commodity sector products, was 2.27pp, which is about 66% growth.

Capital-intensive projects funded through new borrowings in addition to the uncertainty about the increase in tariffs form our opinion regarding the current overvalued KEGOC shares. The dividend yield of 8% as a short-term growth trigger has lost its relevance and with a new target price of T1337/share, implying a discount to the market price of 17%, we do not note significant triggers that can compensate for the ambiguous cash flow dynamics. We expect a weaker EBIT margin from 31% in 2018. up to 25.7% by 2026 and low return on capital at 3.8% against the current 9.3%. We downgrade our recommendation on KEGOC shares from Hold to Sell.

According to preliminary production data of Lukoil, the average daily production of hydrocarbons for 1Q2019 increased by 4% yoy and amounted to 2 379ths boepd.

We associate the volatility of Kazakhtelecom’s shares in the first half of 2019 with the growth of debt burden after the acquisition of Kcell, the early realization of the put option in the Tele2-Altel joint venture and the increase in the volume of trading in shares on the market. In our opinion, corporate events related to the redemption of shares from minority shareholders and one-time expenses of Kcell for paying a fine to Kar-Tel, are temporarily reflected in the value of the Company's shares. Considering the Company’s fundamentals, the extensive telecommunications infrastructure and the leading positions of Kazakhtelecom in the mobile communication, broadband access, fixed telephony and Internet segments, we believe that in the long term, the Company will be able to generate stable cash flows to cover liabilities and stabilize credit indicators. Considering the need to attract additional debt to repurchase a stake in the joint venture, on the one hand, and diversification of the Company's business portfolio, on the other, we raise our recommendation from Hold to Buy ordinary shares of Kazakhtelecom and lower 12M TP from 32 000 to 30 130 KZT/share.

In 1Q2019, uranium production on a proportional basis was 3mn tons of uranium, which is 5% higher than in 1Q2018. At the same time, sales of uranium decreased by 28% yoy to 1.6mn tons, which the company associates with the transfer of supplies (800 tU) at the request of the client for 2Q2019.