EUR 150.00 For Business Accounts Only

PGNiG – Sell (downgraded), Underweight (downgraded), 12M EFV = PLN 3.50 (downgraded)

PGNiG

We strongly cut our financial forecasts for the Company on the back of extremely high winter temperatures and increasingly pessimistic outlook for natural gas. As a consequence we have become negative towards the equities of PGNiG (Sell + Underweight, 12M EFV of PLN 3.5 per share). Please note that we are aware of several positive equity catalysts which could be supportive for the stock in the near horizon. Firstly, we expect the Jamal contract to be much cheaper this year than in 2019 thanks to the drop in the price of HFO. Secondly we still believe that the Company has chances of winning the arbitrage case against Gazprom. Nevertheless, even despite these arguments we fear that the equities of PGNiG have limited chances of performing positively in the long run if natural gas further plunge from current levels.

We are surprised to hear of positive temperatures of roughly 10 Celsius in Western Europe in the middle of January, but we are really shocked to see weather forecasts for northern-eastern Europe expecting positive weekly average temperatures in Moscow, Sankt-Petersburg, Olso or Stockholm. It is no wonder European gas inventories are being drawn to a very limited extent and that the stocks are currently over 30% higher in a yoy comparison. We fear that the situation on the European gas market may be especially critical this spring, if strong winter does not kick in in February. We fear that Gazprom may be forced to fight for its market share by offering increasing price discounts to its clients. The expected strong LNG competition from the US in tandem with negative demand effects triggered by economic slowdown, are not going to be any support for natural gas prices.