 Good day, fellow investors. What is the most undervalued stock in the whole world? Well, of course, it's Gazprom. And I'm going to argue that it is extremely undervalued that the management of Gazprom that many say is not good is actually great, and it does exactly what it is meant to be doing. And then we're going to discuss a possible investment strategy when it comes to Gazprom. So, Gazprom's market capitalization is 50 billion dollars, while 70 billion has been spent on capital expenditures from 2015 to 2017, added the 30 billion in 2018, and capex of 100 billion spent mostly financed by free cash flows, operating cash flows, and you have a market cap of just 50 billion. So, what's wrong there? In a normal world, that would be impossible. And consequently, the price to book value is extremely low. The price earnings ratio is extremely low. So, why is it that Gazprom is so cheap? Further, if I look at Gazprom's reserves, those are staggering when compared to the industry. Actually, those are bigger than the whole industry, which is really crazy. Plus, Gazprom has also 172,000 kilometers, that's just about 100 miles of pipelines. According to Sari Energy, the cost per mile increases with pipe size. So, construction on land using 12 inch pipeline costs 300,000 dollars per mile, 42 inch, 1.5 million, given that Gazprom's pipelines are very big. I would take a low price of 500,000 per kilometer, apply it to 172,000 of pipelines, and just the value of the pipelines should be around 82 billion. Even if they spent 60 billion just on the power of Siberia, so actually that should be higher, higher and higher in value. Further, on a cash flow valuation, average operating cash flows of 25 billion over the last few years, assuming 10 billion in necessary sustaining capex with a price to free cash flow of 10, the company should be worth 150 billion at least. Not to mention they own Gazprom 96% of it, with the market capitalization I think of 25 billion. Now the question is still, okay, why is Gazprom valued at just 50 billion? We can start discussing the debt, which is actually just 36 billion in long term debt. Given the operating cash flow of 25, 40 billion per year, this shouldn't be an issue. Let's talk about the management. Perhaps the management isn't good, and then the company is so cheap. Well, I would argue that the management is actually doing what it is supposed to do, and very well. We go back to the same capital expenditures we showed as value, and then you might argue that it isn't actually value. If you spent 100 billion in four years, you might have an expected rate of return, which in Russia should be 10%. So that should add 10 billion per year into free cash flow when the projects are done. Add that to the already 20 billion there, 30 billion free cash flows, profits, net, the market cap could be 400, 500 billion easily in this case. But Gazprom's projects are not expected to be profitable for Gazprom shareholders. Those are expected to be profitable for Mother Russia and for all Putin's friends that have companies that actually build those pipelines. I have found the Sberbank report from Alex Fak, yes that's his surname, that he published this report in May 2018, and then he was immediately fired from Sberbank for doing that. But he argues that the management is actually very good, because it does what it is supposed to do. Let me discuss a little bit the report. I cannot use Sberbank's details, but Google it a little bit and then you will find Sberbank's report. And if you're interested in Gazprom, I really suggest that you read it. I'll try to just show you a few points from the report to make things clearer. If you look at the power of Siberia here under two, Gazprom could have gone with a much, much cheaper way, power of Siberia, 60 billion cap, 60 billion capex. If they would have gone to the shorter route, where they already have pipelines, where they already have production and everything, they could have spent just 10 billion. But that would be 50 billion less to the pockets of the people like Gennady Timchenko that own businesses that build pipes and are Putin's friends, because you don't become head of Russia-China business council if you're not a friend of Mr. Putin. So he owns Stroy Transgas, a company that builds pipelines. And then if we go to Turkey, Turkstream and Nordstream, that was done politically to avoid going through Ukraine, not really profitable in the long term, because you already have a pipeline going through Ukraine. But they are very happy to build those pipelines, especially as most of the spending is done on Russian shores. And then, of course, Bulgaria, Serbia, there will be a Russian company doing that. Another company in the same business is Stroy Gas Montage, owned by Arkady Rottenberg, a close ally of Putin. And they are also building the pipelines. And back to Stroy Neft Gas, they awarded the contract to build 548 kilometers of pipelines for Gazprom, without a tender for Nordstream to just to give an example. To put things into perspective, just look at the huge operating cash flows in the last 10 years. Huge capex and miserable free cash flow. The first line in the yellow is the operating cash flows. It's in rubbles, but those cash flows are huge 20-40 billion dollars per year. For practically all the past, what, seven, eight years, cap spending is close to the operating cash flows. And there is just a little bit of money left to pay dividends. So this summarizes Gazprom. And I think the chart, the table with the cash flows really tells you, okay, this is Gazprom. It's a company owned by the Russian government and smooched by the Russian government to increase production, increase building, increase Russian GDP, and to help those companies that build those pipelines and increase Russian GDP. Because those companies have employees, Russians, that work, etc., etc. Don't forget that Russia was a communist country. So a little bit the power has changed as you have a lot of billionaires now. But still, I think that the dividend for shareholders across the world is not the first priority when it comes to building pipelines, developing GDP, employing people, getting, giving some money to rich ally friends, and then come the dividends, as you can see in the free cash flow. So that's something to keep in mind when it comes to Gazprom. However, we are investors and we have to always look, okay, what can go bad there and what is the upside? So let's see. The dividend is 5.3%. It has been increasing at least in rubbles over the past 10 years constantly. So we have constant dividend increases, some special dividends, but on average dividends have gone up. However, the question is, okay, when the power of Siberia, Nord Stream 2, Turk Stream are done and completed, there should be a big sunk cost that has already been paid and there should be some cash flows. So that should be a positive. But what will Gazprom do with the other cash flows where this is an old chart that I have found from 2000, 2000 something that describes the age of Gazprom's pipelines. Now we are at more than 50% of the pipelines that are older than 30 years. Do you think that in the next decade, Gazprom will be investing to renew all those pipelines so that those companies can have a job? That might happen. So all of the above is also summarized by the fact that the stock didn't go anywhere in the last 15 years. So when I buy something, I like to be convinced that if the stock goes even lower, I buy even more because when it goes down, it means that the value increases. However, if they decide to cut the dividend, they decide to increase taxes on natural gas or whatever. And if they decide to renew all the pipelines, I think the upside is really limited and the last 10 years have been a proof of that and that's why Gazprom is undervalued. Given the politics, given everything, we don't know what can happen there and I wouldn't be happy averaging down if the stock price goes even lower just because of course there is value because I don't know what will put in the side. It's impossible to do that. So let me compare Gazprom to other oil companies in Russia, oil and gas as I have a list there. So we'll see, we'll watch it, we'll see how it goes but I'm not convinced. Let's say if we ask the seven questions we have been discussing in the videos, does it have great management? Of course the management is great but not for shareholders. So it simply isn't a yes and why bother then with such companies where we can find companies that have great management and similar downside and also similar upside. So that's why for now Gazprom is a no for me. Perhaps I'll invest in it if at some point in time I really don't find anything better but for now I'll stick to my research, researching, creating reports like this and then from 500 reports I'm sure I'll be able to pick the five 10 stocks that have all yeses. I don't need more than 10 stocks in my next decade to have great returns. Thank you for watching. Looking forward to your comments on this, objective comments or are you really enthusiastic about the extreme upside potential if Gazprom would be fair to shareholders or are you disappointed from the perspective that the management isn't actually working for you? Thank you and I'll see you in the next video.