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1. Analysis of the activities of PJSC “Novatek”.

The history of PJSC “NOVATEK” began in August 1994 with the foundation of OJSC “Novafininves. Since its establishment the Company concentrated its efforts on the development of oil and gas assets. The licenses were acquired for deposits located in the Yamalo-Nenets Autonomous Okrug — Vostochno-Tarkosalinskoye, Khancheyskoye, Yurkharovskoye — and considerable funds were invested in their development and installation. In 1996 a trial industrial operation of the oil facility of the East Tarkosalinsky deposit was launched, and in 1998 the first natural gas was produced at this field. In 2002, with the first supply of gas to end consumers, the development of gas marketing began.

In 2004 the consolidation of the main assets of “NOVATEK” was completed, and in 2005 the company began to sale non-core assets in order to concentrate on the main business. The same year the Purovsky condensate processing plant was put into operation, which is the most important link in the vertically integrated production chain of the Company, and the initial public offering of “NOVATEK’s” shares was held on the London and Russian stock exchanges.

In subsequent years the production volumes and the asset portfolio of the Company grew at an accelerated pace. The shares in joint ventures such as “SeverEnergia”, “Northgas”, “Yamal LNG” were acquired, as well as new licenses, including promising areas on the Gydan Peninsula and in the Gulf of Ob. A large-scale LNG construction project for the Yamal LNG plant was begun, which will allow the Company to enter the international gas market.

The development of a vertically integrated production chain continued, the most important stage of which was the launch in 2013 of the condensate processing complex in Ust-Luga.

In 2017 the production of liquefied natural gas (LNG) began on the first production line of the Yamal LNG plant, and in August 2018 a lot of LNG received on the second production line was shipped. The company entered the international gas market — this was the most important stage of transformation into a global gas company and the largest player in the LNG market [4].

Drawing attention to the market where the company works, it can be noted that the total gas production in 2019 in Russia will increase by almost 5.2%. It reflects the growing demand for natural resources in both the national economy and the economies of other countries. The average excess of demand over supply in Russia and the world is 2.5%, which also confirms the earlier conclusion about the active development of the market where the company under study operates.

It is also important to note the positive dynamics of demand for petroleum products, which existed on the market until March 2020. The fall in global energy markets in March 2020 led to a reduction in demand for domestic energy. However, demand is projected to recover at the 2019 level after the pandemic, as well as the recovery of national economies in European countries and China.

The main competitors of the studied company are: PJSC ”Gazprom”, PJSC ”Rosneft”, PJSC ”Surgutneftegas”, PJSC ”Lukoil”, PJSC ”Tatneft”, PJSC ”NK RussNeft”. These competitors are the largest in Russia and, like the company under study, supply petroleum products and gas to the domestic and foreign markets.

While analyzing the competitors in world markets, it can be noted that the largest of them are: SAUDI ARAMCO (Saudi Arabia), EXXONMOBIL (USA), BRITISH PETROLEUM (Great Britain), ROYAL DUTCH SHELL (Great Britain – Holland), CHEVRON (USA), TOTAL SA (France), SINOPEC (China), PETROCHINA (China). The position of the company on the foreign market is largely determined by the foreign policy and foreign economic situation of the Russian Federation, as well as the dynamics in the global energy markets.

In order to analyze the market better, we correlate the production dynamics of the enterprise under study with the largest manufacturers of the Russian Federation in Figure 1.

PJSC “Novatek”

PJSC “Rosneft”

PJSC “Lukoil”

PJSC “Gazpromneft”

PJSC “Surgutneftegaz”

Figure 1 – The dynamics of energy production in 2014-2018 by major market players [3]

Analyzing the dynamics shown in the figure, it can be noted that there is a cumulative increase in production by all market players. However, PJSC “Novatek” has a leading position on the Russian market. At the same time, one can note the fact that due to the characteristics of the industry in which the enterprise operates, as well as the presence of a number of mineral mining contracts, the company’s market share will remain.

Thus, we can say that the company, we analyze, is one of the market leaders. The further development of the company is associated with the foreign policy and foreign economic situation of the Russian Federation, however, the presence of steady demand in the domestic market indicates the possibility of stable operation of the company in the market. 

2. Key performance indicators of PJSC “Novatek”.

In order to improve the quality of the study of the company’s activities, we study the economic indicators of the selected enterprise using table 1.

Table 1 — The main economic indicators of PJSC “Novatek” in 2018-2016 [1]

Based on the results of the calculations, the following conclusions can be drawn:

 there is a positive trend in proceeds from sales of company products during the analyzed period. Moreover, this dynamics is achieved by increasing production volumes, since the pace of proceeds from sales and production costs are quite similar;

 the company’s net profit tends to increase, which reflects an increase in the efficiency of production and business activities of PJSC “Novatek”;

 the value of non-current assets in 2018-2017 increases by 22.8%, which is associated with the implementation of a number of innovative projects at the enterprise. The reduction of this indicator in 2019 is associated with the liquidation and sale of part of non-current assets due to their non-compliance with the requirements existing in the industry where the enterprise operates;

 profitability indicators are at the industry average level, however, they slightly exceed the indicators observed by other major market players. It suggests that PJSC “Novatek” pays significant attention to the effectiveness of its activities;

 the company increases the amount of short-term debt while reducing long-term debt. This trend can be considered positive if the structure of short-term debt is dominated not by loans and borrowings, but by payables. In this regard, we examine the structure of the company’s obligations further.

For greater clarity, the structure of obligations of PJSC “Novatek” is illustrated in Figure 2.

Долгосрочные заемные средства – Long-term borrowed funds

Краткосрочные заемные средства – Short-term borrowed funds

Кредиторская задолженность – Accounts payable

Прочие краткосрочные обязательства – Other current liabilities

Figure 2 — Debt structure of PJSC “Novatek” [1]

Analyzing the data presented in the figure, it can be noted that the largest share of debt is formed by long-term and short-term borrowed funds. At the same time, we see a rather large amount of accounts payable. This suggests that the growth of short-term accounts payable is associated with modernization and innovation processes.

The authorized capital of PJSC “NOVATEK” is 303,630,600 rubles and is divided into 3,036,306,000 ordinary shares with a par value of 0.1 rubles. As on December 31, 2018, “NOVATEK” did not have preferred shares. The equity structure of the company under study is illustrated in Figure 3.

GAZFIN SAIPRUS LIMITED

“Santata” Ltd.

“Levit” Ltd.

“Belona” Ltd

Figure 3 — The structure of the share capital of PJSC “Novatek” [4]

Analyzing the structure of the share capital of the selected company presented in the figure, we can conclude that a significant part of it belongs to various legal entities. The founder of the company abandoned a significant part of his share in the capital of the company in connection with 2020, before which he owned about a quarter of the authorized capital.

NOVATEK’s shares are quoted in Russian rubles on the Moscow Exchange on the first level quotation list. Global Depositary Receipts (GDRs) Companies are listed on the London Stock Exchange.

3. Analysis of financial instruments of PJSC Novatek

As the analyzed financial instrument of PJSC “Novatek” we will choose the bonds of the company, since it is through them that a significant part of the capital of the studied company is formed.

The characteristics of these securities are the following:

Type of securities: common shares

Securities form: uncertificated

Par value of each security of the issue: 0.1 rubles.

The number of placed securities of the issue: 3,036.31 million.

Early redemption of shares: at the discretion of the Issuer.

The average rate of return: 3.97%

Validity: without limitation [4]

The dynamics of changes in the value of bonds of PJSC “Novatek” and the Moscow Stock Exchange Index are illustrated in Figure 4. In the figure, the dynamics of the value of bonds of PJSC “Novatek” is illustrated in blue, and the dynamics of the Moscow Stock Exchange index in black colour.

Figure 4 — Dynamics of the value of bonds of PJSC “Novatek” and the Moscow Stock Exchange Index [5]

While studying the dynamics of the selected financial instrument, it can be noted that it is quite similar to the dynamics of the Moscow Exchange Index. It is justified by the characteristics of the industry and the market in which the enterprise operates, as well as the dependence of the Moscow Exchange Index on large oil and gas companies of the Russian Federation.

However, it should be noted that the growth of the Moscow Stock Exchange Index is lower than the growth of stocks of the company analyzed. Such dynamics is justified by both the leading position of the selected company in the market and its importance for the national economy of the Russian Federation. However, the company’s dependence on the dynamics of global energy markets had a significant negative impact on the value of Novatek’s shares, especially in mid-March 2020.

The sharp decline in both the Moscow Exchange index and the stock price of the company under study is justified by the refusal to extend the “OPEC+” agreement, as well as lower energy prices. It allows us to predict that with further negative development of the oil market, the value of the shares of the company under study will gradually decrease.

In the process of forming its own investment portfolio, the inclusion of “Novatek” shares is forward-looking. It is justified by the following provisions:

 despite the significant dependence of the analyzed company on the dynamics of global energy markets, the company’s shares are included by many brokers and analysts in the conservative portfolio. It allows us to talk about low risk investing, as well as obtaining the declared level of return by the investor;

 a relatively low rate of return also confirms a low risk when investing. It should be noted here that the rate of return is below the rate of return on deposits. In this regard, investing in the securities of the company under study is possible to preserve savings from inflationary processes, as well as a gradual increase in profitability;

 a positive image of the company in the oil products market allows us to talk about the return on investment even in a crisis of the Russian national economy.

Based on the above, it can be concluded that the shares of the company under study can be included in the investment portfolio of a private investor, seeking to preserve the volume of its savings, and also wanting to overcome the influence of inflation. However, for investors who want to get high returns on investment, the shares of the company under study are not attractive.