- Gazprom is one of the most undervalued stocks in the world from a cash flow and book value point of view.
- Many argue the problem is the management. I argue the management is doing exactly as expected.
- If we look at future capex options, Gazprom might not be a bargain after all.
With a price to earnings ratio of 3, price to book of 0.26, a price to operating cash flow less than 2, $60 billion invested just in the Power of Siberia pipeline on a market capitalization of $48 billion, Gazprom (OGZPY) is extremely undervalued.
However, as value investors, we must look at what will be the future catalysts that might unlock that value. Some say it will be the completion of the Nord Stream 2, Turkstream and Power of Siberia pipelines that will lower capex and leave plenty of cash for higher dividends. On the other hand, one might argue about the profitability of such projects and whether OGZPY will be forced to invest in many new projects no matter the economics. Keep in mind that the yield on the Russian 10 year bond is 8.71%, thus the dividend of 5% is not really a bargain.
In the video I discuss:
0:24 Gazprom’s value
3:25 Gazprom’s management, and
7:39 an appropriate investment strategy for the stock.
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