Gazprom Shares: Forecast for 2019

Gazprom is one of the largest Russian companies, so the forecast of prices for its shares in 2019 is of interest to many investors. It should be remembered that Gazprom was and remains a state corporation, which significantly affects its operations and all market quotes.

Gazprom

Shares of Gazprom: the history of growth and falls

Currently, the concern controls approximately two thirds of natural gas production in Russia, about 35% of European and 10% of the global blue fuel market. It has a monopoly on the export of Russian gas through pipelines. Assets in 2018 are estimated at about $ 300 billion, which is comparable to the performance of companies such as Chevron (USA), Total (France) and Sinopec (China), but less than the assets of Royal Dutch Shell (United Kingdom-Niederdandy) or Exxon Mobil (USA).

Market gas prices are traditionally tied to oil quotes. In the “zero years” against the backdrop of high oil prices, Gazprom’s shares grew rapidly and peaked in 2008. The company's capitalization (the price of one share on the open market, multiplied by their total number) was then about 365 billion dollars.The leadership of the gas giant even announced plans to bring capitalization to $ 1 trillion. dollars and become the largest company in the world for this indicator. But these fantasies did not come true.

After a collapse in oil prices in 2009, the concern’s capitalization has noticeably decreased. For example, one share of the company cost about 250 rubles in 2011, but less than 100 rubles in 2012. Then, the ruble price of shares stabilized at around 150 rubles. Dollar quotes fell even more due to the significant devaluation of the Russian currency (more than 2 times relative to the level of 2012). Now the capitalization of Gazprom amounts to about 3,500 billion rubles, or 54 billion dollars, which is less than its assets. In September 2018, another Russian gas corporation, Novatek, surpassed Gazprom by this indicator, although the company L. Michelson and G. Timchenko has much smaller assets and production volumes.

Political and other non-market factors also seriously affect the price of Gazprom shares. A public corporation contains numerous non-core and, as a rule, unprofitable assets. Among them are football clubs, television channels, other media resources, etc.In addition, the Russian authorities use Gazprom as a universal wallet from which various “necessary” projects are paid. Many assets of this corporation in the past were seized and transferred to other organizations without any explanation.

Gazprom

A heavy blow for Gazprom was the war with Ukraine. This led not only to sanctions against the corporation from the US and EU countries, but also to the collapse of plans to establish control over the gas transportation system of Ukraine (pipelines and storage facilities). In 2018, the Stockholm Arbitration Court ordered Gazprom to pay the Ukrainian company Naftogaz about $ 4.6 billion in compensation for refusing to supply gas under a transit agreement. The Russian corporation is trying to appeal this decision, but the outcome of the case remains unclear.

What will happen in 2019

Most Russian analysts predict a rise in gas giant stocks in 2019.

Financial analystsThe forecast price of Gazprom shares, rub.date
Sova capital 212 September 20, 2019
ATON 211 September 26, 2019
BCS 207 September 27, 2019
VTB Capital 191 September 26, 2019
Uralsib 178 September 27, 2019
Current price 162 September 28, 2018

These positive forecasts are justified by the assurances of Gazprom’s management,that the company will complete in 2019 the construction of three strategic pipelines: Nord Stream 2, Turkish Stream and Power of Siberia. Presumably, this will reduce costs, dramatically increase corporate profits and result in significant dividends to be paid to shareholders.

However, many independent analysts point out that this is far from being "rosy." First, the Russian state is not interested in paying any serious dividends to minority shareholders. From the point of view of the authorities of the Russian Federation, the income of this corporation should be withdrawn through taxes or other non-market methods. Such tactics took place in the past.

Secondly, even in case of successful completion of the construction of all strategic pipelines in 2019, the corporation remains under pressure from various negative factors. The pipelines themselves are mainly political, not economic projects.

Nord Stream-2 through the Baltic Sea and the Turkish Stream through the Black Sea are designed to punish Ukraine and effectively stop the transit of gas through this country. The United States, as well as many countries of Eastern Europe, in particular, Ukraine, Poland, Lithuania, Latvia and Estonia, strongly oppose the Nord Stream 2.In Germany, which is the main customer of this project, the attitude of public opinion to the Russian gas concern remains cautious.

Gazprom

The “Turkish Stream” is extremely dependent on the military-political situation in the Middle East, particularly in Syria. Since Turkey and Russia are active participants in regional conflicts, their relations may radically deteriorate at any time.

Finally, the Power of Siberia pipeline, due to connect the Russian Federation and China, may bring more losses to the gas giant than profits. Chinese authorities do not hide that they are betting on the development of their own oil and gas production. Therefore, they are not interested in significant supplies from Russia. The contract price of gas for this project is not called for reasons of "commercial secrets", but it is known that it is tied to oil prices and is much lower than the prices at which Gazprom supplies fuel to European countries.

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