Omv Petrom - After The Strom

 

 

OMV Petrom – Earnings Revison

Rating: BUY (unch.)

Target Price (12-m): RON 0.496 (prev. RON 0.463)

Current share price: RON 0.364

 

We reviewed our clean CCS-based EBIT estimates for the years to come recognizing that the government’s new gas pricing regulation is likely to have an impact equivalent to only ca. EUR 60 mn p.a. on OMV Petrom’s operating results  between 2019 and 2021, and that refinery margins may advance faster on the back of the new IMO requirements. Accordingly, we raised our clean CCS-based EBIT estimates from RON 3.79 bn to RON 4.23 bn for 2019 (-12% YoY), and from RON 3.16 bn to RON 4.26 bn for 2020 (+1% YoY), respectively. We lifted our estimates for 2019 and 2020 clean net income estimates as well, from RON 2.87 bn and RON 2.31 bn to RON 3.31 bn and RON 3.28 bn. Our oil price assumptions remained intact at USD 65/bbl for perpetuity.

 

OMV Petrom’s net cash position amounted to approximately ca. RON 5.3 bn at the end of 2018 accounting for 25% of the current market cap. If not accounting for W/C movements all main segments remained self-funding despite higher investments in downstream. With positive FCF generation (we use the difference between clean CCS EBITDA and CapEx as a proxy to estimate cash generation capacity) OMV Petrom managed to keep a sound balance sheet leaving considerable financial headroom and liquidity for both organic and inorganic growth opportunities. The company’s simplified net debt/clean CCS-based EBITDA and net gearing ratios stood at -0.2x and -22% at the end of 2018 vs. -0.1x and -20% at the end of 2017.

Petrom aims to maintain a positive free cash flow after dividend distribution for the majority of the period between 2019 and 2021. Petrom intends to pay a dividend of RON 0.027 per share for 2018, implying a dividend yield of ca. 7% based on the current share price.

 

CapEx will decrease to around RON 3.7 bn in 2019 compared with RON 4.3 bn in 2018, of which the vast majority (75%) of will again be spent in upstream, out of which around RON 380 mn are related to exploration activity. Petrom plans to drill more than 100 new wells and side-tracks and to carry out intense workovers. Petrom plans to perform turnaround of the Brazi power plant affecting two weeks of full capacity and two weeks for half capacity. Polyfuel plant in the Petrobrazi refinery will become fully operational in early 2019.

 

We consider OMV Petrom’s valuation as very attractive relative to peers. Petrom trades on EV/clean CCS-based EBITDA multiple based our 2019 earnings estimate of 2.7x vs. peers’ 4.8x

 

Attila Vago
Senior Analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
Phone:  | Fax: | Mobile:
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MEMBER OF THE CONCORDE GROUP

 

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