Samruk-Kazyna reveals details of upcoming KMG initial offering

Finance columnist
It is expected that the company’s cap will reach $11 billion

The National Welfare Fund Samruk-Kazyna, the only owner of the national oil company KazMunayGaz (KMG), revealed the details of its upcoming initial public offer. The holding is going to place 30 million shares for $18.09 per share. It is expected that the total capitalization of the company will reach about $11 billion.

According to Murat Kastayev, head of DAMU Capital Management, the announced share offering price means that potential investors can count on $0.70 of dividends (4%), as the company is planning to allocate about $430 million for dividends a year.

Last year, KMG reported $2.81 billion of revenue with a P/E ratio of 3.93, which is a sign that the process of investments returning can take about four years. This is 25% of the annualized gain.

«The current parameters of the upcoming initial offering of the KMG stock offer at least 4% of earning capacity in dividends and 25% of yield if the stock’s price goes up,» said the expert.

«In short terms, the KMG share offering price is quite attractive. However, it’s not clear what KMG is going to do to cut costs. The national company is overloaded with social responsibility tasks and unlike any private company can barely cut costs or lay off its personnel,» Kastayev pointed out.

According to the expert, the P/E ratio for Chevron is 10.43, for ExxonMobil 9.15, and Saudi Aramco 12.99. «All these companies have better P/E ratios because their businesses are less risky. It’s hard to imagine that these giants may face any sort of problem they won’t be able to solve. In contrast, KMG’s business model doesn’t look as attractive,» he added.

By contrast, Leonid Delitsyn from Finam believes that the fair price of KMG stock is $22.7 per share, which is 25% higher than the announced share offering price of $18.09. Thanks to the current EBITDA and revenue coefficients of KMG and the relatively low offering price, this may stir up the interest of investors, the analyst said.

With a capitalization of $11 billion, KMG ranks second after Kaspi ($12.5 billion according to KASE).

Olzhas Baidildinov, Baidildinov.Oil TV show host, has estimated KMG’s value at $15-20 billion. His calculation is quite simple: the company controls oil reserves in the amount of 4.7 billion barrels. Each barrel that hasn’t been produced yet costs $2-4. As of June, the equity capital of the company was $18.9 billion, which means that the company is underestimating itself.

«KMG was established 20 years ago and now its top executives and consultants estimate its value at $11 billion. Kaspi stock is traded much higher than this threshold on the LSE,» he said. On the other hand, those who have free money to buy underestimated KMG stock will win in the end.

Head of the asset management department in UD Capital Damir Seissebayev noted that in order to stir up the interest of those investors who prefer dividends, the earning power of KMG stock must be higher than state bonds. The yield of public securities now is about 15%, which is slightly higher than a minimal dividend. «Currently, this category of investors might be interested in KMG stock only if the coefficient of dividend payouts reaches 70%. I am not sure that this is a realistic scenario,» the expert underlined.

However, dividends are just a part of this narrative. Another important issue is capital gains. For those investors who want the company’s capital to increase, it is important to know that the stock is not overevaluated. «Amateur investors want to see different evaluations from leading investors and independent experts and their appetite for the company’s stock will partially depend on these evaluations,» Seissebayev said.

Also, the expert points out speculators, another group of potential investors. As long as KMG’s revenue depends on oil prices, the company’s shares will be subject to speculations.

Some actors might be interested in buying KMG stock to diversify their financial risks. The range of quick assets isn’t big in Kazakhstan; therefore many professional investors may want to add KMG stock to their portfolio.

KazMunayGas is a national oil company in Kazakhstan, established in 2002. KMG is engaged in a wide range of oil industry operations including exploration, production and transportation of crude oil. On December 7, Astana International Exchange is going to put KMG on its list of traded companies. The roadshow for the KMG initial offering is going to start very soon.

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