August 10, 2011
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Home / Issue Archive / 2011 / June #6 / Export Window To Open Soon? EnBW Deal Could Give NOVATEK Access to EU Markets

№ 6 (June 2011)

Export Window To Open Soon? EnBW Deal Could Give NOVATEK Access to EU Markets

Access to EU markets possible soon. Germany’s press reported this week that the country’s third-largest electricity generator EnBW is in talks with NOVATEK (NVTK LI – Hold) over a strategic alliance that could allow NOVATEK to sell natural gas to the EU.

By Alexey Kokin

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It was initially reported that the two companies were discussing a cooperation deal worth EUR800 mln ($1.1 bln), with NOVATEK buying a stake in EnBW or one of its subsidiaries.

The latest reports suggest that EnBW will offer NOVATEK a 25% or larger stake in Leipzig-based distributor Verbundnetz Gas (VNG).

EnBW is not a VNG shareholder, but has an option to buy a 48% stake, part of which could be ceded to NOVATEK. In exchange, NOVATEK would guarantee gas deliveries to EnBW and VNG.

Target price to be raised 18% under best-case scenario.We believe that NOVATEK could sell at a 15% discount to our projected average Gazprom EU price.

We take a conservative view of Gazprom’s prices, modeling them at just 10-15% above spot prices. NOVATEK would therefore be selling at or slightly below spot prices.

Assuming it exports just 5 bcm pa, we estimate that EBITDA would exceed our projections by 18% in 2012, 12% in 2013, and 7-9% in 2014-16. Looking further, the impact should fade as domestic prices reach netback parity.

This would increase our target price by $13/GDR, or 9%, from $140 to $153/GDR, still implying a Hold recommendation (we also assume that NOVATEK buys into VNG at its fair value).

Doubling the export volume from 2013 to 10 bcm per annum would add 36% to NOVATEK’s EBITDA that year and increase its target price 18% to $165/GDR, suggesting 17% upside.
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