OMV Petrom - The rally should continue - Earnings Review from Concorde Securities Ltd. (Hungary)
OMV Petrom – Earnings Review
Rating: BUY (unch.)
Target Price (12-m): RON 0.504 (prev. RON 0.428)
Current share price: EUR 0.372
In the first nine months of 2018, OMV Petrom (Petrom) reached clean CCS ROACE of 11.8% (vs 9.1% in Q1-3 2017) and generated FCF after dividends of EUR 282 mln (compared to EUR 440 mln in Q1-3 2017) with the effect of a 80% increase in CapEx YoY. The company’s net cash amounted to approx. RON 4.2 bln at the end of 30 September, 2018 (i.e. RON 0.074 a share) and represented around 20% of the current market cap.
Oil prices have plunged in recent weeks from near four-year peaks on oversupply concerns in the face of waivers on the sanctions against Iran, and also on increased activity of swap dealers trying to manage the risk of their short put position on oil through delta-hedging in response to a decline in crude oil prices. Notwithstanding oil price rout and US producer hedging, demand resilience, meaningful inventory levels, possible OPEC production cuts of 1 million to 1.4 million bbl/d and a weaker dollar towards the end of the year could put a floor beneath higher prices. Such a recovery in prices will allow the Brent forward curve to return into backwardation unless OPEC coupled with Russia decides to leave output unchanged (a low probability outcome in our view). Given that, we expect the Brent oil price to average at USD 71.5/bbl in 2018 and USD 65/bbl in 2019 (compared to our previous expectations of USD 72.5/bbl for 2018 and USD 70/bbl for 2019.)
OMV is an international energy company with activities in Exploration and Production (E&P), Refining and Marketing including petrochemicals (R&M), and Gas and Power (G&P). Co. explores and develops oil and gas resources and supply energy to over 100 million people. OMV has three operating segments: Exploration and Production (E&P), Refining and Marketing, including petrochemicals (R&M), and Gas and Power (G&P), as well as the segment Corporate and Other (Co&O).
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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