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PJSC LUKOIL Company (LKOH) Extended Graph Analysis

November 27th, 2019 Posted by Extended Analysis No Comment yet

About the Company

Lukoil

Lukoil is an oil and gas company, specializes in oil and gas exploration, refining, transportation, marketing and distribution. The company produces petroleum products and petrochemicals, their products are sold internationally in Russia, Eastern and Western Europe, near-abroad countries and the USA.

The company is operating under the following segments: Exploration and Production, Refining, Marketing and Distribution and Corporate and Other.

Lukoil was founded by Vagit Alekperov on November 25, 1991, headquartered in Moscow, Moscow. The company’s date of IPO was on April 18, 20013 registered under the ticker MCX:LKOH.

 

PJSC Lukoil Company Extended Graph Analysis

1. LKOH CASH FLOWS

LKOH CASH FLOWS

2014 2015 2016 2017 2018 2019
Net cash provided by operating activities 865,369,697,920 848,972,000,000 752,247,000,000 758,490,000,000 1,006,651,000,000 1,109,952,000,000
Net cash provided for investing activities -813,952,240,920 -525,722,000,000 -500,343,000,000 433,286,000,000 420,392,000,000 415,243,000,000
Net cash provided by (used for) financing activities 58,921,626,400 -253,063,000,000 -193,134,000,000 247,395,000,000 468,549,000,000 523,214,000,000
Capital expenditures -813,952,240,920 -601,325,000,000 -499,679,000,000 -512,108,000,000 -451,679,000,000 -431,851,000,000
Free cash flows 51,417,457,000 247,647,000,000 252,568,000,000 246,382,000,000 554,972,000,000 678,101,000,000

Facts:

  • Cash from operating activities were RUB 1.1 trillion in 2019.
  • Cash provided for investing activities were RUB -415 billion in 2019.
  • Net cash from financing activities were RUB -523 billion in 2019.
  • Capital expenditures were RUB -431.9 billion in 2019.
  • Free cash flows were RUB 678 billion in 2019.

Explanation

  • Cash from operating activities increases year-over-year as net income increases year-over-year.
  • Cash from investing activities were the investment in property, plant and equipment; acquisitions, purchases of investments and purchases of intangibles.
  • Net cash provided by financing activities were debt repayment, common stock repurchased, dividend paid and other financing activities.
  • Capital expenditures are investments in property, plant and equipment.
  • Free cash flows had a growth of 1219 percent in five years and increases year-over-year.

Interpretation

The company was efficient in providing cash from operations year-over-year in the last five years. Further, the management was able to provide a positive free cash flow in the last five years.

 

2. LKOH BALANCE SHEET

LKOH BALANCE SHEET

2014 2015 2016 2017 2018
Total cash 179,988,892,720 281,031,000,000 278,301,000,000 349,951,000,000 518,850,000,000
Total current assets 1,265,091,787,960 1,213,647,000,000 1,255,641,000,000 1,308,114,000,000 1,478,479,000,000
Net property, plant and equipment 4,528,460,507,480 3,411,153,000,000 3,391,366,000,000 3,575,165,000,000 3,829,164,000,000
Total non-current assets 4,949,472,204,040 3,806,960,000,000 3,759,023,000,000 3,918,101,000,000 4,253,903,000,000
Total assets 6,214,563,992,000 5,020,607,000,000 5,014,673,000,000 5,226,215,000,000 5,732,382,000,000
Short-term debt 118,788,222,280 60,506,000,000 58,429,000,000 128,713,000,000 99,625,000,000
Total current liabilities 789,994,485,280 695,168,000,000 830,686,000,000 958,847,000,000 914,560,000,000
Total non-current liabilities 914,841,629,520 1,102,971,000,000 963,107,000,000 784,417,000,000 752,262,000,000
Total liabilities 1,704,836,114,800 1,798,139,000,000 1,793,793,000,000 1,743,264,000,000 1,666,822,000,000
Total stockholders’ equity 4,509,727,877,200 3,222,468,000,000 3,220,880,000,000 3,482,951,000,000 4,065,560,000,000

Facts:

  • Cash was RUB 518.9 billion in 2018.
  • Current assets were RUB 1.478 trillion in 2018.
  • Net property, plant and equipment was RUB 3.8 trillion in 2018.
  • Non-current assets were RUB 4.254 trillion in 2018.
  • Total assets were RUB 5.7 trillion in 2018.
  • Short-term debt was RUB 99.6 billion in 2018.
  • Current liabilities were RUB 914.6 billion in 2018.
  • Non-current liabilities were RUB 752 billion in 2018.
  • Total liabilities were RUB 1.667 trillion in 2018.
  • Shareholders equity was RUB 4.066 trillion in 2018.

Explanation

  • Cash has a growth of 188 percent in five years and it represents 35 percent of current assets.
  • Current assets increased by 17 percent in 5 years and it represents 26 percent of total assets.
  • Net property, plant and equipment decreased by 15 percent in five years and it represents 90 percent of total non-current assets.
  • Non-current assets decreased by 14 percent in five years and it represents 74 percent of the total assets.
  • Total assets decreased by 8 percent due to property, plant and equipment.
  • Short-term debt represents 11 percent of total current liabilities.
  • Current liabilities represents 55 percent of total liabilities.
  • Non-current liabilities represents 45 percent of total liabilities.
  • Total liabilities represents 29 percent of the total liabilities and equities.
  • Stockholders equity represents 71 percent of the total liabilities and equities.

Interpretation

The company has a sound balance sheet in the last five years. The company is operating its business using two-thirds of the shareholders investment and one-third using the creditor’s money.

 

3. LKOH INCOME AND MARKET

LKOH INCOME AND MARKET

2014 2015 2016 2017 2018 2019
Revenue 8,013,730,295,480 5,749,050,000,000 5,227,045,000,000 5,936,705,000,000 8,035,889,000,000 8,325,588,000,000
EBIT 493,552,000,760 464,692,000,000 416,820,000,000 503,811,000,000 768,721,000,000 860,157,000,000
Net Income 263,813,244,240 291,135,000,000 206,794,000,000 418,805,000,000 619,174,000,000 673,275,000,000
Market Capitalization USD 30,216,000,000 22,762,000,000 40,646,000,000 41,078,000,000 49,695,000,000 66,635,000,000
Intrinsic Value USD 31,345,008,852 32,862,137,222 123,791,444,678 119,855,455,079 98,365,393,274 185,462,883,775
EBITDA 901,889,989,000 784,162,000,000 624,386,000,000 872,354,000,000 1,148,295,000,000 1,251,370,000,000

Facts:

  • Revenue was RUB 8.326 trillion or USD 130 billion in 2019.
  • EBIT was RUB 860 billion USD 13.455 billion in 2019.
  • Net income was RUB 673 billion or USD 10.532 billion in 2019.
  • Market capitalization was USD 66.6 billion or RUB 4.260 trillion in 2019.
  • Intrinsic value was USD 185 billion or RUB 11.856 trillion in 2019.
  • EBITDA was RUB 1.251 trillion or USD 19.574 billion in 2019.

Explanation

  • Revenue was erratic in movement in the last five years and has grown only 4 percent..
  • EBIT has a growth of 74 percent in five years.
  • Net income has a growth of 155 percent in five years. Further, it represents 8 percent of the total revenue.
  • Market capitalization increased by 121 percent in five years.
  • Intrinsic value increased by 492 percent in five years. Moreover, intrinsic value was greater by 178 percent against market capitalization.
  • EBITDA has a growth of 39 percent in five years. 

Interpretation

The company is profitable, the management has proficiently managed its business operation in the last five years.

4. LKOH FINANCIAL RATIOS

LKOH FINANCIAL RATIOS

2014 2015 2016 2017 2018 2019
Asset Turnover (average) 1.63 1.02 1.04 1.16 1.47 1.46
Return on Asset (ROA) % 5.38 5.18 4.12 8.18 11.3 11.82
Return on Equity (ROE) % 7.44 7.53 6.42 12.49 16.41 17.74
Financial Leverage (avg) 1.37 1.56 1.56 1.5 1.41 1.53
Return on Invested Capital % 6.83 6.71 5.71 10.67 14.51 15.74
Interest Coverage 11.63 9.83 7.76 23.68 25.01 22.62

Facts:

  • Asset turnover was averaging 1.46 in 2019.
  • Return on assets was 11.82 percent in 2019.
  • Return on equity was 17.74 percent in 2019.
  • Financial leverage was averaging 1.53 in 2019.
  • The return on invested capital was 15.74 percent in 2019.
  • Interest coverage 22.62 in 2019.

Explanation

  • Asset turnover indicates that the company is generating $1.46 of net sales for every dollar in assets.
  • Return on assets indicates that every dollar invested in the entire asset base produced 0.1182 cents.
  • Return on equity indicates that every dollar of shareholders equity generated 17.7 cents in profit.
  • Financial leverage indicates that in every dollar in equity LKOH had $1.53 in total assets. $0.53 was borrowed.
  • Return on invested capital indicates that 15.74 percent is the return that the company makes over its capital. 
  • Interest coverage indicates that the company is making more than enough money to cover interest payments 22 times over.

Interpretation

The company is profitable and management is efficient in the performance of its business operations.

5. LKOH KEY EXECUTIVE COMPENSATION

LKOH COMPENSATION OF DIRECTORS AND MANAGEMENT COMMITTEE MEMBERS

REMUNERATION OF DIRECTORS AND MANAGEMENT COMMITTEE MEMBERS

2016 2017 2018
Remuneration for performance of duties of a member of the Board of Directors, RUB 6,000,000 6,500,000 6,750,000
Total amount paid to members of the Board of Directors, RUB million * 192,400,000 261,100,000 816,800,000
Total amount paid to members of the Management Committee, RUB million ** 1,636,300 1,738,800 5,502,400***

* This amount includes, among others, payments to Directors who are employed by the Company but are not members of the Management Committee (such as salary, bonuses and other types of remuneration).

** Including the remuneration of the President of PJSC LUKOIL

*** With due regard for execution of the Regulations on Long-Term Incentives for Employees of PJSC LUKOIL and its Subsidiaries in 2013-2017

Facts:

  • Compensation for performance of duties of a member of a Board of Directors was RUB 6,750,000 in 2018.
  • Total amount paid to members of the Board of Directors was RUB 816,800,000 in 2018.
  • Total amount paid to members of the management committee was RUB 5,502,400 in 2018.

LUKOIL KEY PEOPLE

NAME TITLE
Ravil Ulfatovich Maganov Executive Director, Vice Chairman
Vagit Yusufovich Alekperov CEO, Director. President
Leonid Arnoldovich Fedun/ Executive Director Executive Director
Lyubov N Khoba/ Executive Director Director, Chief Accountant, President

 

6. LKOH LOBBYING AND CONTRIBUTIONS

 

No Politicians or Lobbyist Found – OpenSecret.org  

Center for Responsive Politics

 

7. LKOH FINANCIAL STRENGTH

LKOH FINANCIAL STRENGTH

DATA

(in RUB)
Working capital 563,919,000,000
Total assets 5,732,382,000,000
Sales 8,325,588,000,000
EBIT 860,157,000,000
Market value of equity 4,342,735,440,000
Book value of total liabilities 1,666,822,000,000
Retained earnings 3,963,628,000,000

CALCULATION

Ratio Score Result
A – Working Capital / Total Assets 0.10 1.20 0.12
B – Retained Earnings / Total Assets 0.69 1.40 0.97
C – EBIT / Total Assets 0.15 3.30 0.50
D – Market Value of Equity / Book Value of Total Liabilities 2.61 0.60 1.56
E – Sales / Total Assets 1.45 1.0 1.45
Z-Score 4.60

 

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Explanation:

Z-Score is a statistical measurement that compare data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Lukoil has a Z-Score of 4.60. Dr. Altman’s grading scale of 3.0 and above indicates that the company will not declare bankruptcy. In other terms, the company is not close to insolvency. The main factors of this statistical measurement is the profitability, liquidity, leverage and efficiency.

 

CITATION

http://www.lukoil.com/

https://www.opensecrets.org/search?q=++PJSC+Lukoil+LKOH&type=indiv

 

Reseahttps://www.morningstar.com/stocks/xlon/lkoh/quoterched and written by Criselda

 

 

 

 

exxon-mobil-corporation-xom

Exxon Mobil Corporation (XOM) Capable of Generating Sufficient Revenue

October 30th, 2012 Posted by Investment Valuation No Comment yet

Exxon Mobil Corporation (XOM), one of the world’s largest publicly traded energy providers and chemical manufacturers, develops and applies next-generation technologies to help safely and responsibly meet the world’s growing needs for energy and high-quality chemical products. Exxon Mobil Corporation website.

Exxon Value Investing Approach

This model is prepared in a very simple and easy way to value a company, it adopts the investment style of the Father of Value Investing Benjamin Graham. The essence is that any investment should be purchased at a discount, meaning the true value should be more than the market value. Graham believed in fundamental analysis and was looking for companies with a sound balance sheet and with little debt. The basis for this valuation is the company’s five years of historical financial records, the balance sheet, income statement, and cash flow statement. We calculated first the enterprise value as our first step. We believed this is important because it measures the total value of the company.

The Investment in Enterprise Value  

The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value EV) is the present value of the entire company.  Market capitalization is the total value of the company’s equity shares. In essence, it is a company’s theoretical takeover price, because the buyer would have to buy all of the stock and pay off existing debt, and taking any remaining cash.
Enterprise Value = Market Capitalization + Total Debt – (Cash and Cash Equivalent + Short Term Investment)XOM EV

The table showed the market capitalization of Exxon Mobil Corporation experienced the downfall in 2008 at 15 percent and another 15 percent down the following year.  From 2010, XOM recovered with an increase of 11 percent average until ttm6.  Total debt represented 3 percent of the enterprise value, while cash and cash equivalent represented 5 percent of the enterprise value, thus, enterprise value is lesser than the market capitalization by 2 percent.

Buying the entire business of XOM would be buying 100 percent of the equity because cash and cash equivalent are greater than the total debt. The current buying price as of to date October 23, 2012, was $404.9 billion at $85.29 per share. The market price to date was $90.18 per share.

Benjamin Graham’s Stock Test 

Net Current Asset Value (NCAV) Approach

The Net Current Asset Value (NCAV) is a method from Benjamin Graham it is to identify whether the stock is trading below the company’s net current asset value per share, specifically two-thirds or 66 percent of net current asset value. Meaning they are essentially trading below the company’s liquidation value and therefore, the stocks are trading in a bargain, and it is worth buying.

Net Current Asset Value (NCAV) Method 

XOM NCAVPS

The net current asset value method for XOM shows that the stock was trading at an overvalued price from 2007 to ttm6 of 2012 because the price was over the 66 percent of NCAV by 99 percent in average. This means that the stocks were trading above the liquidation value of XOM by 99 percent. The stocks did not pass the stock test of Benjamin Graham.

Market Capitalization/Net Current Asset Value (MC/NCAV) Valuation  

Another stock test by Graham is by using market capitalization and dividing it to net current asset value (NCAV).  If the result does not exceed the ratio of 1.2, then the stock passed the test for buying. So, let us see if the stock of Exxon Mobil Corporation passed the stock test.

  XOM MC NCAV

The market capitalization/net current asset value valuation (MC/NCAV) for Exxon Mobil Corporation tells us that the price was overvalued from 2007 to ttm6 2012 because the ratio exceeds 1.2. It shows that the stocks of the company did not pass the stock test of Benjamin Graham because the result of the valuation is greater than 1.2 ratio.

Benjamin Graham’s Margin of Safety (MOS)

The margin of safety is used to identify the difference between company value and price. Value investing is based on the assumption that two values are attached to all companies – the market price and the company’s business value or true value. Graham called it the intrinsic value. The difference between the two values is called the margin of safety. According to Graham, the investor should invest only if the market price is trading at a discount to its intrinsic value. Value investing is buying with a sufficient margin of safety. Graham considers buying when the market price is considerably lower than the intrinsic or real value, a minimum of 40 to 50 percent below. The enterprise value is used because, in my opinion, it is a much more accurate measure of the company’s true market value than market capitalization.

XOM MOS

Explanation

Benjamin Graham’s margin of safety valuation for XOM shows that there was MOS from 2007 to ttm6 2012 at an average of 75 percent. The intrinsic value was erratic in movement and it was 413 percent of the enterprise value.

Intrinsic Value = Current Earnings x (9 + 2 x Sustainable  Growth Rate)  

The explanation for the calculation of intrinsic value was as follows:

EPS, the company’s last 12-month earnings per share; G: the company’s long-term (five years) sustainable growth estimate;  9 : the constant represents the appropriate P-E ratio for a no-growth company as proposed by Graham  (Graham  proposed an 8.5, but we changed it to 9); 2: the average yield of high-grade corporate bonds.

The intrinsic value factors earning per share and the sustainable growth rate. By multiplying 9+2 to the sustainable growth rate (SGR) we get the annual growth rate. I have used the basic earnings per share in calculating the intrinsic value.

XOM IV

Explanation

The sustainable growth rate factors return on equity and the payout ratio.  The return on equity was multiplied by the result of 1- payout ratio over 100. Then, we get the sustainable growth rate as seen in the formula mentioned above. The average ROE for Exxon Mobil Corporation was $28 and the average SGR was $22. Payout ratio was $25 average in five years period.  XOM is paying cash dividends to its shareholders’ yearly.

XOM Graph

The table shows that the intrinsic value line was higher than the enterprise value line. In 2009, it shows a sudden drop of the line at -82 percent, then slightly going up at a rate of 131, 62 and 18 percent from 2010 to ttm6 2012 or an average of 70 percent. The distance between the two lines, enterprise value, and the intrinsic value is the margin of safety.

The Relative and the Averages Approaches

There are two approaches in calculating the sustainable growth rate and this affects the intrinsic value and the margin of safety.

XOM Relative

The table shows that relative return on equity produced a higher result than by using average approach, except for the margin of safety percentage.

XOM Relative Valuation Methods 

Price to Earnings/Earning Per Share (P/E*EPS)   

This method will determine whether the stocks are undervalued or overvalued by multiplying the Price to Earnings (P/E) ratio with the company’s relative Earning per Share (EPS) and comparing it to the enterprise value per share, we can determine the status of the stock price.

XOM PE EPS

The P/E*EPS relative valuation for Exxon Mobil Corporation indicate that the price was trading at the undervalued price. Because the price (enterprise value) was lesser than the P/E*EPS results.

The enterprise value per share was 97 percent, the price was 3 percent lower than the result of valuation, therefore, the price was undervalued.

The Relative and Average Approaches

There is another approach in calculating P/E*EPS, and this is by using the average price to earnings ratio.  The above table is the result of using the relative price to earnings ratio.

XOM Relative PE

It shows that using the average price to earnings produces a higher result, therefore, the price is undervalued by 5 percent.

Enterprise Value (EV)/Earning Per Share (EPS) or (EV/EPS)   

The use of this ratio is, to separate price and earnings in the enterprise value.

XOM EV EPS

The EV/EPS tells us that the price (P/E) 14 percent, while the earnings (EPS) was 86 percent.  The price was only 17 percent of the earnings. The price indicates that stock was trading at an undervalued price.

Enterprise Value (EV)/ Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA) or (EV/EBITDA).   

This metric is used in estimating business valuation. This metric is useful for analyzing and comparing profitability between companies and industries.

XOM EV EBITDA

Explanation

The EV/EBITDA valuation was 5 years or 5 times.  This means, that it will take 5 times the cash earnings to cover the costs of buying the entire business. In other words, an investor will wait 5 years to cover the cost of the purchase price.

This method also shows the profitability of the company.  The net earnings were 9 percent, while the gross margin was 37 percent. Moreover, XOM’s EBITDA was 19 percent on average.

Conclusion 

The market capitalization of Exxon experienced a down in 2008 and 2009 at 15 percent each year. Then an up movement in 2010 to ttm6 2012 with 11 percent average. The total debt represents 3 percent of the enterprise value. While cash and cash equivalent represent 5 percent of the enterprise value.  Buying the entire business  buying 100 percent of its equity because cash and cash equivalent are greater than total debt.

The net current asset value approach price was overvalued because the stock is trading above the liquidation value. Likewise, In MC/NCAV price was overvalued because the price was over the 1.2 ratios.

The margin of Safety (MOS)

Moreover, the margin of safety for Exxon indicates an average of 75 percent. Using the average return on equity in calculating the sustainable growth rate, the margin of safety was higher by 1 percent at 76 percent.

On the other hand, in PE*EPS valuation price was undervalued because the price was greater than the result of P/E*EPS. Using the average price to earnings ratio, the result was greater by 5 percent in the P/E*EPS percentage.

EV/EPS

The EV/EPS indicate that the price (P/E) was 14 percent average, while the earnings (EPS) was 86 percent. It indicates that the price was undervalued.

Furthermore, it will take 5 years or 5 times the cash earnings to cover the costs of buying the entire business. XOM has a fair margin of earnings and was capable of generating sufficient revenue for its daily operations.

The margin of safety was 75 percent and the relative valuation tells us that the stock was trading at the undervalued price. In other words, the price was cheap, I, therefore, recommend a BUY on the stock of Exxon Mobile Corporation.

Research and Written by Cris

Note:

Research Reports can be found under the company tab.