OREANDA-NEWS. July 29, 2010. TNK-BP Intl released neutral US GAAP financials for 2Q10. According to the press-release 2Q10 net profit (USD1.16bn) declined 7% QoQ, which was below our forecast of 12.5%. Net income dropped QoQ due to the reservation of approximately USD150m against possible legal claims, reported the press-centre of OTKRITIE Financial Corporation. 

Also, the company posted 2Q10 EBITDA of USD2.38bn (+4% QoQ) and revenue of USD 10.5bn (+3% QoQ). The EBITDA and revenue figures were almost in line with our estimates. Its EBITDA margin remains steady at 22.7%. Net debt rose by USD 230m (+4%) in 2Q. TNK-BP FCF sank to USD 961m in 2Q compared with USD 1.32bn in 1Q. This reduction was a result of a 52% capex expansion, spent on the development of both greenfields and brownfields, as well as on refining. The company increased oil and gas production by 0.7% QoQ (we expected 2% growth) mainly due to the Uvat and VCNG projects, which increased production by 14.2% and 27.5%, respectively.

View: We expect neutral market reaction on the report. TNK-BP has positive long-term prospects. First of all, company strategy implies 4% annual oil production growth through 2015, in combination with conservative capex expenditures. Second, TNK-BP’s dividend policy will not be revised, which means a high dividend yield.

Valuation and Action: TNK-BP trades on a 2010 EV/EBITDA of 2.5x. We reiterate our BUY rating on TNK-BP Holding with a target price of USD 2.52/share.