Estimated fair value of Russian Oil and Gas sector stocks on example of OJSC ‘Rosneft’ shares

<p>The following paper is devoted to the problem of estimation of fair value of oil sector stocks using the very common approach &ndash; fundamental analysis. The key purpose of this study is aimed to apply the common tools and methods of fundamental analysis in estimation of stock fair value. Particularly in this paper work, author used the &laquo;up-to-bottom&raquo; approach, gradually executing macroeconomy, industry and company financial performance analysis. Oil sector analysis was done for both world and Russian economies with purpose to arrive at more precise and reliable results. For the practical part of this paper work the common stocks of OJSC &ldquo;NK Rosneft&rdquo; were analyzed. &ldquo;Rosneft&rdquo; is the biggest oil company among all Russian oil and gas companies and one of the leading oil companies in the world. First, the comparable companies analysis was executed. In this case, author has identified 11 oil companies that were tiered up into 3 categories: 1) companies with large market capitalization, 2) with mid-cap and 3) small-cap companies. By doing so, the future directions of main trading multiples movement was revealed. As a result the possible range of both company and its equity fair value was identified. Nevertheless, for more precise figures further author has applied Discounted Cash Flow model (DCF). To forecast the future company growth, both historical data and the results of regression model were used. Finally, it led to adjusted future growth rate for forecasting horizon. For growth in perpetuity the company&rsquo;s development was tied up to estimated GDP growth. As a result, the estimated fair value of &nbsp;&ldquo;Rosneft&rdquo; stock was defined. On the basis of these results potential investors were provided by the key suggestions.</p>