OREANDA-NEWS. July 28, 2010. Rosneft released strong headline US GAAP figures for 2Q10 and 1H10. The company posted 2Q10 net income of USD 2.56bn (+5% QoQ) and EBITDA of USD 4.74bn (+7% QoQ) on net revenues of USD 15.43bn (+5% QoQ), reported the press-centre of OTKRITIE Financial Corporation.

While the reported net income was slightly below consensus (by 3%), the EBITDA figure was 2% ahead of consensus. The revenue figure was essentially in line with consensus. More important, Rosneft generated very strong cash flow from operations (USD 4.89bn), which helped reduce its net debt position by USD 2.7bn (from USD 18.5bn at the end of March to USD 15.8bn at the end of June 2010).

View: We believe Rosneft’s share price correction in 1H10 was overdone, given that the stock has lost almost 30% of its market value on the back of revisions to the tax breaks provided earlier for Rosneft’s largest greenfield project—the Vankor field. Although Rosneft will enjoy a reduced export duty rate for 100% of crude produced at the Vankor filed in 2H10 and switch to regular duties only in 2011, the stock lost almost USD 25bn value from its 1H10 highs. This is incomparable to the theoretical NPV of Vankor duty savings (~USD 10bn) under the assumption of a three-year relief.

Valuation and Action: Rosneft currently trades on a 2010E P/E of 6.0x. Its premium to LUKOIL has narrowed substantially over the past few months, which we do not believe is well-justified. We maintain our positive outlook and our BUY rating on the stock.