Департамент торговых идей

We hold “Buy” recommendation of NC KMG bonds.

The results for 2018 indicate an increase in revenues by 15% y/y to T176bn. The main share of revenue comes from the power transmission (61%), revenues from which increased by. The power transmission generates most of the revenues (61%) of the company that increased 15% y/y.  Overall KEGOC demonstrates positive dynamics in all types of services that resulted from both of average growth of tariffs relative to 2017, to a great extent, and form the growth of physical volumes of electricity consumed, to some extent.

According to 1Q2019 results, the Company produced 374 koz of gold equivalent (+27% y/y), including 302 koz of gold (+ 41% y/y) and 5.1 mn oz of silver (-15% y/y). Major increase in production in 1Q2019 occurred at Kyzyl up to 78 koz and 92 koz of gold in concentrate, at the Omolon plant up to 53 koz (+69% y/y) and on Svetloye to 9 koz (+ 10% y/y).

In January-March 2019, the STEI reached 4.2% yoy, which is lower than in 2017 (4.8% yoy) and 2018 (5.3% yoy) the same period. According to our estimates, commodity sector’s contribution to the STEI, including transportation and sales of commodity sector products, was 2.98pp, which is about 71% growth.

Yesterday KazTransOil reported 1Q2019 operating indicators. The volume of transportation on separate basis decreased by 0.8% and the oil turnover volume decreased by 1.4%, reaching 9 326 mn tons / km. The consolidated oil turnover decreased by 2% to 11,276mn tons/km

Dear clients,

Once again we are grateful to you for your continuous trust and choice Halyk Finance as a robust professional guider to investment opportunities in the domestic and international markets!

Judging by the data on real wage growth of 2.3% and employment growth of almost 1% in 2018, we can conclude that the labor market has finally got out of the crisis. However, the past crisis, when real wages continuously declined for three years in 2015-2017, did not give way to serious positive changes, the share of self-employed remains high and close to a quarter of all employed, the share of those employed in SMEs didn’t change, the brain drain increased The salaries of ordinary specialists are rather low by world standards, the growth of the economy has broken away from the growth of real wages, as a result of which they have to be raised, including at the expense of the National Fund and administrative measures to suppress inflation.

In 2018, the Company included the full results of Macedonian mine SASA acquired at the end of 2017. According to the financial results for 2018, the Company's gross income amounted to USD204.5mn (+ 91.7% y/y) due to an increase in its share of SASA field revenues to USD111.6 mn (+ 458% y/y) and a slight increase in revenue at Kounrad deposit (+7.2% y/y). EBITDA rose to USD125.3mn (+132.5% y/y). EBITDA margin was 61% in 2018 against 51% in 2017. Net profit for 2018 increased by (+46% y/y) and amounted to USD72.7mn. The Company's net debt for 2018 decreased to USD110.3 mn (-20.6% y/y). According to the current dividend policy, the CAML management recommends paying an annual dividend of GBp 14.5 per share (2018: 16.5GBp/share), which is 44% of the Company's adjusted free cash flow for 2018.

Despite the modest financial results of Kcell for 2018, the Company's shares demonstrated a steady increase of 19% from April 2018, reaching a price of KZT1 930/share. We note that the main factor in the increase in shareholder value in 4Q2018 was attributable to the acquisition of 75% of Kcell voting shares owned by Telia Company and Fintur B.V. since the Company’s IPO by the largest telecommunications operator – Kazakhtelecom. The consolidation of two companies in the telecommunications market carries with it a number of potential and cost-effective synergies. Combining strategic and operational resources will allow the Company to reduce fundamental risks, optimize operating expenses and gain access to the infrastructure and technological resources of the main shareholder. Considering the new strategic priorities aimed at attracting high-quality customers, as well as the growing business of contract phones and the development of individual business solutions in the corporate segment (B2B), we are upgrading our recommendation from Hold to Buy and 12M TP from KZT1 350/share to KZT2 225/share.

We recommend to Hold Nostrum Oil and Gas shares with a 12M target price of $101/share, assessing the company's financial results for 2018 as weak, at the same time noting the company's resource potential as sufficient to maintain the level of average daily production at 30-40ths boepd over the next 5 years. In anticipation of expert evaluation of the results of drilling, we remain uncertain about the future prospects of production and are committed to the most conservative forecasts. At the same time, we see the possibility of a sustained improvement in profitability for Nostrum in the event of a positive assessment of the wells, which will allow us to build higher production volumes.