Strong 1H2019 results despite weak oil market conditions. Lukoil’s statement results for 6M2019 demonstrates revenue growth of 7.9% yoy to 3 977bn rubles. EBITDA increased by 22.5% yoy to 630.2bn rubles. The growth was driven by higher sales volumes of crude oil and natural gas due to higher production volumes. The increase was also supported by the ruble devaluation resulting in higher average international prices for hydrocarbons in ruble terms, which partially offset the increase in the price of purchased crude oil by 5.7% yoy to 2.2tn rubles. Operating profit amounted to 421bn rubles (+ 28% yoy) and net profit strengthened by 20% yoy, amounting to 332bn rubles, which in our opinion is a strong result. Mostly the company's “dollar” revenue eliminates the negative effect of fluctuations of oil prices, due to which the sensitivity to the situation on energy markets for Lukoil shares is relatively lower. CFO in the reporting period increased by 25% yoy to 513bn rubles. Cash at the end of 1H2019 amounted to 506bn rubles, showing an increase of 3% since the beginning of the year and by 49% yoy. At the end of 2019, we expect EBIT to grow by 9% yoy to 841bn rubles and we see the potential to achieve a net profit level of 666bn rubles. FCF, according to our forecasts, will be positive and will reach 700bn by 2025.
Second wave of buyback. In August this year, Lukoil completed the $3bn stock buyback program, planned for the period from September 2018 to December 2022. Repurchased stocks amounted to 4.96% of the authorized capital of the company. All repurchased shares were redeemed and the total number of issued ordinary shares of Lukoil decreased from 750mn to 715mn. In early October this year, Lukoil announced the launch of its second buyback program for the same amount of $3bin, which will be sold until December 30, 2022. Given the current market price, the buyback volume of $3bn is about 5.1% of Lukoil's authorized capital. We note mainly the positive impact of the buyback on LKOH shares, given that the offer price at the previous buyback assumed a premium to the market price of 5.4%. In addition, due to the higher EPS value and dividend per share due to buyback, Lukoil shares look even more attractive in comparison with the competitors.
ЕLukoil, which has a dividend history of more than 20 years, has been continuously increasing the dividend for the last 6 years and striving to increase the dividend per share annually by at least the level of ruble inflation. Free cash flow dividend coverage ratio for 2018 amounted to 351%. At the end of last year, Lukoil allocated about a third of its net profit for payment, which corresponds to 250 rubles per share and a dividend yield of 5%. At the minimum guaranteed dividend level of 25% of net profit, according to our expectations, the company will maintain the growth of dividend per share, increasing the payout ratio if necessary. An impressive cash position with a fairly low debt burden (Debt/Equity 16% with an industry average of 37%), in our opinion, will allow the company to provide a high dividend yield. At the end of 2019 we expect an increase in the total dividend by 8% yoy to 270 rubles per share. Given that the company practices the payment of interim dividends, we expect good preconditions for the growth of shares over the next month in anticipation of the announcement of the dividend for 9M2019. Note that according to the results of 9M2018 Lukoil paid 95 rubles/share and 85 rubles/share for 9M2017. In the future, due to the ongoing buyback program, we expect a more significant increase in dividend per share.
