2019: Gazprom to gain on corporate governance

We said:

Other top-down drivers besides sanctions rule out a repeat of last year's outperformance of Russian oil and gas stocks relative to the wider Russian equity market. Corporate governance performance could outweigh these top-down headwinds. Lukoil and Gazprom are the stocks to watch here. 

The upside in Gazprom's case is that it is one of the few hold-out SOEs that, until now, have managed to avoid compliance with the government's 50% dividend pay-out ratio norm. That resistance will continue to be beaten down this year and next. Brightening dividend prospects at Gazprom depend not only on government pressure (which is always up against Gazprom's lobbying clout), but also on the impending completion of the company's major pipeline projects - Power of Siberia, Turkstream and Nordstream-2. New government initiatives to tighten control of SOE capex should also be good for shareholder value. Finally, increased exposure to Gazprom makes sense given the increasing share of gas in global energy consumption and the chance during this political cycle of more radical - and value-enhancing - restructuring of the company through export liberalization and the unbundling of its business. 

Outcome:

Gazprom gained 66% from 153.30 ruble at the time of publication to 255.35 ruble on the 4th of July. The MICEX index gained 15% over the same period. The trigger was the mid-May announcement of a doubling of the dividend pay-out from 2017. The Financial Times quoted analysts as follows: "We deem the new proposal to be a strong signal of positive corporate governance developments". 

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