Romgaz - In Dire Straits
Romgaz - Earnings Revision
Recommendation: Accumulate (unch.)
Price target (12m): RON 30.0 (prev. RON 38.8)
Current share price: RON 28.0
Given all new adverse regulatory measures, we feel it appropriate to cut our clean EBITDA estimates for 2019 and 2020 from RON 2.4bn to RON 2.04bn and RON 2.07bn. Also, we reduce our net income forecasts for 2019 and 2020 by 18% and 20%, respectively from RON 1.42bn and RON 1.43bn to RON 1.16bn and RON 1.14bn.
Even though we cut significantly our earnings forecasts because of new taxation and the introduction of gas price ceiling, we remain confident that Romgaz will stick to a pay-out ratio of at least 90% of its annual reported net income in the coming years, hence our expectation for a DPS growth remaining in line with its reported EPS growth trajectory. We forecast DPS to be RON 3.30 for 2018 and RON 2.71 for 2019. If our EPS and DPS expectations materialize for 2018 and 2019, Romgaz’s share price implies a DIVY of min. 10%% for the coming years.
Downward revisions to our earnings estimates for the coming years led us to reduce our 12-m TP, which is based on DCF approach, from RON 38.8 to RON 30.0. We note, however, that the share price has already fallen enough to reflect the negative impact of the Emergency Ordinance on Romgaz’s profitability. With a DIVY projection of 10% for the coming years based on the current share price, the total shareholder return should be ca. 17% over the next 12 months on our estimate. Although with heightened regulatory risks and increased volatility in commodity prices, the risk-reward ratio has become less appealing we maintain our Accumulate rating on Romgaz.
Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.
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