EUR 150.00 For Business Accounts Only

PKN Orlen

PKN Orlen

Incalculable uncertainty of COVID-19. It is far from clear if COVID-19 can be stopped this year, so any timing scenarios on the spreading of the virus are at best only guesses which need to be treated with caution and understanding. Our base case scenario assumes that the situation will start normalizing this summer (we assume that the pace of spreading the COVID-19 virus will decelerate in 2Q20 leading to the containment of the virus and the ending of the lockdown in 3Q20). Even in such a scenario, we believe that the emergence of deep global economic recession is unavoidable. Even if we fight off the virus in 2020, the rebound in economic growth will surely take a while.

Expected ST effects of COVID-19 in our scenario. We believe that the lockdown effect triggered by COVID-19 is likely to have very serious negative effects on the Company’s EBITDA in 2020. The lockdown, which is limiting personal and corporate activity is sure to lead to devastating fuel consumption dynamics in 2Q20 and 3Q20 which in turn will most likely damage margins throughout the Company’s whole value chain. We expect all of the Company’s business segments to be negatively affected by the lockdown resulting in a drop of the EBITDA LIFO in 2020 to only 5.3 billion (from PLN 9.5 billion in 2019). We expect that 2Q20 may prove especially challenging with consolidated EBITDA LIFO of under PLN 0.5 billion (although any such estimate should be treated with caution given the unprecedented volatility of refining margins and fuel cracks). Please note that relatively high exposure to gasoline of PKN Orlen could prove to be a disadvantage. In our view COVID-19 should have relatively stronger negative impact on gasoline consumption than diesel and those refineries with high gasoline slates will most probably be the first refiners to downsize production.