Oil and gas
July 13, 2010Ukrnafta – hefty upside from new oil pricing In 2010, Ukrnafta will finally bring its oil prices in line with the global benchmark oil prices, a drastic change from the 50% average discount last year. This should offset an increase in the company’s royalties and add an additional USD 0.3 bln to Ukrnafta’s gross revenues in 2010, while its net sales should grow by 12% to USD 1.4 bln. Due to improved pricing, Ukrnafta’s net profit should increase by a considerable amount, USD 162 mln, which implies that its net margin will go from 4% in ’09 to 15% this year. Our valuation shows an aggregate 90% upside to the company’s current share value of USD 31.2. We upgrade Ukrnafta to BUY with the target price of USD 59.1 per share.