Omv Petrom - Integrated Business Model Mattered In Q1

 

 

OMV Petrom –Earnings Comment

Rating: BUY (unch.)

Target Price (12-m): RON 0.46 (unch.)

Current share price: RON 0.3295

 

OMV Petrom reported Q1/20 clean CCS EBIT at RON 975mn (-21% YoY), slightly lower than our estimate of RON 1.01 bn. Clean CCS net income attributable to stockholders came in RON 760mn (-28% % YoY), implying clean CCS EPS of RON 0.0134, 28% lower than our estimate.

 

Cash flow from operating activities also declined by 10% YoY to RON 1.36bn mainly due to lower operating results and higher W/C needs, which were mainly related to a decline in trade payables for crude oil and petroleum products purchased.  Cash CapEx went up by 46% YoY to RON 1.22bn, of which upstream investments accounted for almost 70%. FCF before dividends came in at RON 136mn, down by 80% YoY. Net cash amounted to ca. RON 6.1bn at the end of March, 2020, or RON 0.107 a share (ca. 34% of current market cap), up from RON 5.2bn at the end of March 2018. We note that dividends for the financial year 2019 amount to RON 1.76bn, which will be paid starting June 5, 2020.

 

Outlook

 

As for the outlook for 2020, OMV Petrom expects Brent oil price to average at USD 40/bbl and refining margins to stay above USD 5/bbl. Demand for oil products is expected to be significantly lower than in 2019, while demand for gas and power should also drop considerably compared to  2019.

 

Regarding the Romanian macro environment, in the new coronavirus context, GDP growth in 2020 now is expected to drop around 5% in 2020 versus 2019. All the domestic macroeconomics and balances such as budgets for current account deficits are widening. For the full year 2020, OMV Petrom anticipates a sharp decline of demand for all its products.

 

Fortunately, OMV Petrom is exposed to the extent of ca. 3% of its refining production to jet fuels. In the domestic gas market, OMV Petrom envisages a low double digits drop compared to the prior year. We note that Romania is a net gas importing country so we would anticipate that it would cause predominately a reduction in import.

 

For the full year 2020, OMV Petrom has reduced our total capital expenditure, exploration expenditure and operating costs from an initial planned amount of RON 8.2bn to a total expected sum of RON 6.7bn. Upstream production decline will be less than 5% YoY, not including portfolio optimization.

 

As for CapEx (including capitalized exploration and appraisal), it is currently anticipated to be around RON 3bn excluding acquisitions (vs. RON 4.2bn previous guidance and the 2019 level); the reduction would mainly come from less drilling activity, as well as postponement of petrochemical and retail projects. Upstream CapEx is being cut to RON 2bn from RON 3bn, as is the case with exploration expenditures adjusted to RON 0.2bn from RON 0.3bn.

 

At the end of 2019, OMV Petrom hedged approximately one third of its refinery’s budgeted refined oil production volumes, locking in a positive contribution for the next three quarters, which is expected to be in each quarter in a similar magnitude as seen in Q1/20 (i.e. approx. RON 60mn)