Credit Suisses start Gazprom at 'neutral', says new payout policy priced-in

Analysts at Credit Suisse started coverage of London-listed Russian natural gas giant Gazprom a 'neutral' with a $9.0 target price on its American Depositary Receipts, forecasting that the group's payout policy would rise to 5.0% of profits by 2021, versus 30.0% in 2019.

Such a move would take its dividend yield to an "attractive" 8.6% over 2020-21, as some of the company's major projects were completed and capital expenditures declined slightly.

But with the shares having gained approximately 85% since the start of 2019, when Gazprom doubled its dividend per share, the new policy was now more correctly priced-in and the DPS differential versus fellow Russian petrochemical giant Rosneft on 9.3% had all but disappeared.

Gazprom had a strong reserve base and its gas business had one of the lowest cash costs (of $3.0/MMbtu or $2.0&MMBtu excluding owned transport), but it "its underlying growth was undifferentiated" and it needed to demonstrate an ability to generate better returns on an average capital employed basis.

"Overall, it has become more shareholder friendly with its new dividend policy, although we note in today’s weak gas price environment, the company will need to use its balance sheet to pay its rising dividend," they said.

Ahead of the firm's 11 February Investor Day, Credit Suisse pointed out that delays to completion of the Nordstream 2 pipeline were one of the risks that investors needed to monitor, alongside the company's corporate governance.