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ATON - Equity Research Oil and Gas - July 4, 2011.


Right Time to Buy

Summer time. We analysed the performance of the preferred shares of Surgutneftegas, Tatneft, TNKaBP and Bashneft for the past three years paying particular attention to their behaviour in the periods between record dates. We noticed that in 2009 and 2010, the shares reached their lowest levels between dividend record dates in June and July. We view this behaviour as logical as many investors sell their preferred shares after the record date (usually in May) and our observations and discussions with clients suggest that certain investors sell all their stock before the summer holiday season.

The time is now. We believe that July is one of the best months to obtain exposure to Russian oil companies' preferred stocks. We compared each share's dividend yield calculated on average prices in July with prices at yearaend and at the record date. On our estimates, dividend yields measured on July prices were, on average, 20.2 ppts and 24.6 ppts higher than yields based on yearaend and record date prices, respectively, in 2009. In 2010 these numbers were 4.6 ppts and 5.4 ppts, respectively. We also note that the average spreads between common and preferred shares in July 2009 and 2010 were 2.0 ppts and 3.1 ppts higher than the average spreads for the year, which supports our view that now is a favourable time to purchase.

Top picks. TNKaBP's preferred shares are our top pick. On our estimates, the 2011E dividend yield based on current prices is 23%. Bashneft's and Tatneft's 2011E yields are 8.6% and 8.5%, respectively. We note that our estimates of Bashneft's 2011E dividends

may look conservative as they assume a 50% YoY decrease in payouts. We believe that dividend payouts may be reduced on the back of higher capex and the need for cash to fund a potential merger deal with Russneft (please refer to our report Bashneft:

Getting Better All the Time, published 30 June 2011 for details on the deal).

(To view the full report please click here:


Calculation assumptions. TNKaBP and Bashneft pay interim and annual dividends. We estimated the dividend yields for these stocks using total annual dividend payments. Charts. The performance of oil companies' preferred shares is shown in Figures 3a6.

Circles mark the minimum value between two annual record dates. Red vertical lines are annual record dates while grey vertical lines are record dates for interim dividends.

Aton OOO (LLC)

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Publication:Russian Banks and Brokers Reports
Date:Jul 4, 2011
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