Stock Analysis & Valuation PJSC Gazprom Neft (GAZ.L)

• Previous Close: £13.00
• Sector Valuation Confidence Level: Low

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	0.10	-99
Intrinsic value (DCF)	63.05	385
Graham-Dodd Method	12.30	-5
Graham Formula	14.30	10

Strategic Investment Analysis

Company Overview

Public Joint Stock Company Gazprom Neft (GAZ.L) is a leading Russian integrated oil company, listed on the London Stock Exchange. As a subsidiary of Gazprom, it specializes in exploration, production, refining, and distribution of oil and petroleum products. The company operates in a highly strategic sector, contributing significantly to Russia's energy exports. Gazprom Neft has a strong domestic market presence and expanding international operations, particularly in Eastern Europe and Asia. With a revenue of RUB 3.52 trillion (2023), the company plays a critical role in Russia's energy sector, leveraging its vast resource base and refining capabilities. Despite geopolitical challenges, Gazprom Neft remains a key player in global oil markets, focusing on efficiency and technological advancements in hydrocarbon extraction and processing.

Investment Summary

Gazprom Neft presents a high-risk, high-reward investment proposition due to its strong operational metrics and geopolitical exposure. The company reported robust financials for FY 2023, with revenue of RUB 3.52 trillion and net income of RUB 641.11 billion. However, its beta of 1.42 indicates higher volatility, likely tied to geopolitical risks and oil price fluctuations. The lack of dividend payouts may deter income-focused investors, but its solid operating cash flow (RUB 922.95 billion) and manageable debt levels (RUB 897.9 billion) suggest financial resilience. Investors must weigh its operational strengths against sanctions risks and market access limitations.

Competitive Analysis

Gazprom Neft benefits from its integration within Gazprom's ecosystem, providing access to vast reserves and infrastructure. Its competitive advantage lies in low-cost production, advanced refining capabilities, and a strong domestic market position. However, international sanctions limit its global expansion, reducing competitiveness against Western oil majors. The company's reliance on the Russian market exposes it to regulatory and geopolitical risks, unlike more diversified peers. Its technological investments in Arctic and hard-to-recover reserves enhance long-term resource potential but require sustained capital expenditure. Compared to private Russian oil firms like Lukoil, Gazprom Neft has stronger state backing but less operational flexibility. Its refining margins are competitive, but sanctions hinder access to premium markets and advanced technology partnerships.

Major Competitors

• PJSC Lukoil (LKOH.ME): Lukoil is Russia's largest privately owned oil company, with strong international operations. It outperforms Gazprom Neft in refining efficiency and global market access but lacks state backing. Sanctions have impacted both, but Lukoil's private ownership allows more agility in partnerships. Its reserves are smaller than Gazprom Neft's, but it has a stronger retail network in Europe.
• PJSC Rosneft (ROSN.ME): Rosneft is Russia's largest oil producer, with direct state control. It dwarfs Gazprom Neft in scale and political influence but is less efficient operationally. Rosneft's vast reserves and international ventures (e.g., with BP) provide diversification, though sanctions have curtailed these advantages. Gazprom Neft has better refining margins but lacks Rosneft's resource base.
• PJSC Tatneft (TATN.ME): Tatneft focuses on heavy oil and regional (Tatarstan) operations. It is smaller than Gazprom Neft but has a niche in innovative extraction technologies. Its downstream presence is limited, and it lacks Gazprom Neft's refining sophistication. However, it is less exposed to international sanctions due to its regional focus.
• BP plc (BP.L): BP is a global energy major with diversified operations, including renewables. It outperforms Gazprom Neft in technology, sustainability, and market access but faces no sanctions risks. BP's refining and retail networks are more advanced, though its production costs are higher. Gazprom Neft has lower-cost reserves but cannot match BP's global reach.