Gazprom Stock Analysis - Value Stock or Value Trap?


Whenever I talk about oil $oil and gas $natgas , someone will ask me about Gazprom $ogzdl.ru . Gazprom is the largest gas company in the world and largest company in Russia $RSX but the stock price is at the same level that it was in 1997. Gazprom currently has a PE ratio of 2 and a dividend yield of 11%. Is it the ultimate bargain or a value trap? To understand Gazprom, we need to understand natural gas. Natural gas is known as the bridge fuel that will take us away from oil and coal to nuclear and renewables. Natural gas is the least polluting of the fossil fuels. In the future, the demand for natural gas will certainly increase. Why is the price going down? Over supply, mainly from the US. The US is now the largest natural gas producer from shale drilling and fracking in the Permian Basin. Unlike oil, the prices of natural gas in different countries vary a lot and in Europe, gas prices are higher. 35% of Europe's natural gas come from Gazprom. Gazprom is also building a new pipeline to China, called Power of Siberia. This will be a game changer for Gazprom as they expect much of their revenues coming from China in the future. Only about half of the revenues of Gazprom come from natural gas production. They have a very diversified business, prouding oil as well. They operate pipelines and act as a utility company by providing heat and electricity to many places in Russia. They have been growing revenues even with lower gas prices and that's because they have been increasing production. They have natural gas for decades and are not going to run out of gas anytime soon. However, they pay high taxes to the Russian government. Unfortunately, they have high capex and are unable to generate enough free cash flow. Where's all the cash going? In the pockets of Russian oligarch. 50% of Gazprom is owned by the Russian government. Gazprom could have build a cheaper pipeline to China but they chose Power of Siberia, which costs $40 billion more. All that money goes to some oligarch, a Putin ally, who builds these pipelines. When you're investing in a company, you want the cash flows to go to shareholders, not some oligarch. You want good partners, not a corrupt government. Even how good the balance sheet of Gazprom is, at the current price, it is not worth the risk making an investment. There are so many great companies in Russia. Stocks are very cheap. But you need to be careful. I have Polymetal in my portfolio, it is a Russian company, so I won't tell you not to invest in Russia. You should but be careful. Watch the full video on YouTube and Subscribe: https://www.youtube.com/watch?v=VKorUw4vlgY&list=UUPO3uUyoXSaFWG-Ldq1mqEQ You can read the full analysis on my research partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/15246010 Join my private investing group on Facebook for more: https://www.facebook.com/groups/IshfaaqInvesting/

242 views0 comments

Recent Posts

See All