Omv Petrom - Efficiency Improvements Offset Negative Effects Of Volatile Environment

 

 

OMV Petrom – Instant Earnings Comment

Rating: BUY (unch.)

Target Price (12-m): RON 0.523 (prev. RON 0.496)

Current share price: RON 0.408

 

OMV Petrom reported Q2/19 clean CCS operating result at RON 1.0 bn (+36% YoY), 10% lower than our estimate of RON 1.1 bn. Clean CCS net income attributable to stockholders amounted to RON 0.85 bn (+85% YoY), implying a clean CCS EPS of RON 0.015, also 10% lower than our estimate.

 

Cash flow from operating activities rose by 3% YoY to RON 1.4 bn mainly due to higher operating results while the net working capital position worsened a little bit on higher inventories and lower liabilities. CapEx was up 9% YoY to RON 1.0 bn, out of which upstream investments accounted for almost 80%. FCF before dividends came in at RON 0.5 bn, 5% lower YoY. Net cash amounted to RON 4.2 bn at the end of Q2/19, or RON 0.073 a share (ca. 19% of market cap), up from RON 3.0 bn at the end of Q2/18.

 

Clean CCS ROACE stood at 17.7%, significantly improving from 10.1% reported for the same period of last year thanks to excellent operation performance supported by efficiency improvements.

 

We keep our clean CCS-based EBIT estimates at RON 4.23 bn for 2019 (-12% YoY) and RON 4.26 bn for 2020 (+1% YoY), respectively, in the context of the government’s gas pricing regulation, with 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 looks set to be lower than previously despite the new IMO requirements. We maintain our estimates for 2019 and 2020 clean net income estimates as well, at RON 3.31 bn and and RON 3.28 bn. Our oil price assumptions remained intact at USD 65/bbl for perpetuity.

 

Valuation: We raised our 12-m TP from RON 0.496 to RON 0.523 to reflect the roll-over impact on valuation. 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 3.0x vs. peers’ 4.8x.

 

We are of the view that the government’s intention to distribute 8% of OMV Petrom shares to employees at a discount to the current share price (at a price of RON 0.2158 a share, which is the same price as was applied for the company’s privatization) has nothing to do with OMV Petrom’s fundamentals and it may create share overhang only temporarily. It is still unclear if the shares will be offered to the current employees or to those employed 15 years ago, when the privatization contract with OMV was concluded, and either that there will be any sale restriction on these shares or not.

 

 

Attila Vago
Senior Analyst

CONCORDE SECURITIES LTD.

Hillside
55-61 Alkotás street, H-1123 Budapest.
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MEMBER OF THE CONCORDE GROUP

 

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