State of the commons: will Gazprom be able to pay dividends for 2023
- Ksenia Kotchenko Forbes Editorial
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Photo by Valentin Egorshin/TASS After a reduction in gas supplies to Europe and increased costs to reorient business towards Asia, Gazprom may show weaker results at the end of 2023. But the company's management assures that this will not affect dividends. Will shareholders receive payments and what will happen to the company's shares?
Gazprom's dividends have become an intrigue for the Russian market after 2022. Then the meeting of shareholders, contrary to the recommendation of the board of directors, refused to distribute a record 1.244 trillion rubles for the market at the end of 2021 – for the first time since 1998, investors were left without payments.
The main share in the company belongs to the state represented by the Federal Property Management Agency – it owns 38.37%. The rest of Gazprom's shares are distributed among Rosneftegaz (10.97%), Rosgazifikatsiya (0.89%), holders of depositary receipts (6.63%) and other shareholders (43.14%). Capital structure data was last disclosed as of the end of 2022.
Instead of replenishing the budget through dividends in favor of the Federal Property Management Agency, the Ministry of Finance in 2022 introduced an increased mineral extraction tax for Gazprom; the amount of the premium turned out to be equivalent to the total volume of unpaid payments for 2021 (1.25 trillion rubles). Gazprom shares then collapsed by more than 30%.
Investors' disappointment was compensated by the first interim payments in the company's history for the first half of 2022: shareholders received 1.21 trillion rubles, 51.03 rubles per share, but Gazprom refused final payments for 2022. Payments for 2023 are still in question.
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Is there enough money
The company's dividend policy since 2019 provides for the payment of at least 50% of adjusted net profit under IFRS, however, if the net debt/EBITDA ratio is above 2.5x, the board of directors may recommend lower dividends. Deputy Chairman of the Board of Gazprom Famil Sadigov argued that payments for 2023 will not be affected by changes in the debt burden: according to his forecast, the coefficient will be 2.3x.
The company has not yet disclosed its consolidated results for 2023 under IFRS. The reporting of PJSC Gazprom under RAS in this case is not indicative, but reflects a trend towards declining revenue, notes Tsifra Brokera analyst Anna Buylakova. Over the year, revenue decreased by 29.6% (5.6 trillion rubles), profit – by 6.9%, to 696 billion rubles.
According to PSB forecasts, IFRS results for 2023 will be weaker than 2022 due to lower gas prices and the loss of part of the sales market, notes managing expert of the Analytics and Expertise Center Ekaterina Krylova: “We expect a reduction in revenue by 35%, to 7.55 trillion rubles, net profit by 30%, to 0.8 trillion rubles.” Finam Financial Group analyst Sergei Kaufman believes that a decrease in exports, an increase in the tax burden and the normalization of European gas prices led to a decrease in EBITDA by 39%, to 2.2 trillion rubles over the past year, the same assessment was given by the CFO of Gazprom Famil Sadigov.
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The fate of profit
Analysts expect that, despite the deterioration of Gazprom's financial performance in 2023, dividend payments are quite likely. The likelihood of payment increases the federal budget's need for additional revenue, but at the same time, Gazprom will be forced to incur capital costs for the restructuring of logistics, which may become an argument against the distribution of profits, notes Tsifra Brokera analyst Anna Buylakova.
Finam Financial Group analyst Sergei Kaufman estimates the probability of paying dividends at 75%, but calls this an irrational decision given the negative free cash flow (FCF) and the growth of the company's net debt. According to Sinara’s forecasts, Gazprom’s free cash flow for 2023 “at best will be slightly above zero,” and there is a risk of going negative. According to Kaufman, Gazprom's dividends could amount to about 20 rubles per share. Senior analyst at BCS World of Investments Ronald Smith predicts dividends of about 13 rubles per share. Ekaterina Krylova expects payments to amount to 16 rubles per share.
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What happens next
Gazprom shares could add 5-7% if the board of directors really recommends dividends of about 20 rubles per share, Kaufman believes. As of April 24, 2024, the company's shares were worth about 163 rubles. Finam's target price for the company's shares at the end of the second quarter is 157.8 rubles, while Kaufman considers a price below 140 rubles to be an attractive entry point for investors into Gazprom shares. Promsvyazbank's target for Gazprom securities at the end of the quarter is 190 rubles, and Ekaterina Krylova calls the current level of quotes quite good for purchasing shares both for possible dividends and for a long-term purpose.
But analysts differ in their forecasts regarding dividend payments in the future. According to Krylova, Gazprom will retain its status as a dividend player, taking into account budget needs. But Sergei Kaufman warns that by the end of 2024-2025, the debt load and negative free cash flow will no longer allow Gazprom to pay dividends: “According to our estimates, negative FCF, an increase in debt burden and a slow reorientation to the markets of the Asia-Pacific region limit further Gazprom's ability to pay dividends.”
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Ksenia Kotchenko
Editorial Forbes
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