Novatek or Gazprom?

On Friday, a fire occurred at the Gazprom facility. Gas pumping to Europe has sharply decreased. At the moment, Gazprom’s shares fell by 3%, but by the evening they began to buy back the fall, and pumping through the pipeline recovered a little. At this event, the cost of gas at hubs in Europe reached a record $550 per thousand cubic meters. It turns out that prices are rising, and Gazprom may potentially not be able to take advantage of this growth if the accident is serious. However, there is an alternative – Novatek, which recently released financial statements.

Due to the low base of 2020, I think it makes sense to compare the indicators with 2019. For the first half of 2021, Novatek’s revenue increased by only 10% by 2019 to 501 billion, and net profit, adjusted for one-time items, by only 14% by 2019 to 173 billion.

Probably, with a good market situation, Novatek will earn a net profit of a little more than 400 billion in 2021. However, the company is already worth 5 trillion. For comparison, Gazprom is worth 6.6 trillion rubles, but the projected net profit may be at the level of 1.2-1.7 trillion rubles.

If the accident at Gazprom turned out to be serious, it may affect its financial performance, on the other hand, it improves the market situation for Novatek. However, Novatek is more expensive than Gazprom, even taking into account the future launches of the liquefied natural gas terminal.

Therefore, you need to decide. Or we assume that the accident is serious and Gazprom is checking the pumping volumes, and Novatek will benefit from the price increase. Or the accident is not serious and it makes sense to take a cheaper Gazprom, especially based on the record dividends at the end of 2021. Or you can diversify the risks by taking both companies into the portfolio. The last option is not to take anyone.

Probably, the Gazprom accident is not as terrible as they try to imagine it. Usually, companies with such a strategic purpose and trillion-dollar cash flows have various systems for replacing lost capacity and reserves, especially in such strategic areas as pipelines to Europe. Therefore, more thoughts are for the fact that Gazprom will not be seriously affected by the accident.

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