OMV Petrom - Strong downstream oil segment performance drove up Q3 earnings - Instant Earnings Comment from Concorde Securities Ltd. (Hungary)

 

 

OMV Petrom – Instant Earnings Comment

Rating: BUY (unch.)

Target Price (12-m): RON 0.58 (prev. RON 0.523)

Current share price: RON 0.428

 

OMV Petrom reported Q3/19 clean CCS EBIT at RON 1.23 bn (-27% YoY), 4% higher than our estimate of RON 1.18 bn. Clean CCS net income attributable to stockholders came in RON 1.02 bn (-26% % YoY), implying clean CCS EPS of RON 0.018, was broadly in line than our estimate.

 

Cash flow from operating activities dropped by 12% YoY to RON 2.1 bn mainly due to lower operating results. Cash CapEx was down 23% YoY to RON 0.92 bn, of which upstream investments accounted for almost 80%, thus FCF before dividends came in at RON 1.38 bn, up 14% YoY. Net cash amounted to RON 5.39 bn at the end of Q3/19, or RON 0.095 a share (ca. 22% of current market cap), up from RON 4.2 bn at the end of Q3/18. Clean CCS ROACE stood at 14.7%, significantly improving from 11.8% reported for the same period of last year.

 

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 raise our clean CCS-based EBIT estimates to RON 4.73 bn from RON 4.23 bn for 2019 (-2% YoY) and to RON 4.4 bn from RON 4.26 bn for 2020 (-7% YoY), respectively. Our new clean operating earnings estimates includes the impact of the government’s new gas pricing regulation between 2019 and 2021 as long as a final decision on the termination of the price cap system is made. At the same time, we expect refinery margins to be stronger than previously thought on the new IMO regulation.

 

We lifted our estimates for 2019 and 2020 clean net income estimates as well, to RON 3.84 bn (+3% YoY) and RON 3.46 bn (-10% YoY) from RON 3.31 bn 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 0.523 to RON 0.58 to reflect the roll-over impact on valuation and higher earnings estimates for the coming years. We consider OMV Petrom’s valuation as still very attractive relative to peers. Petrom trades on P/E and EV/clean CCS-based EBITDA multiples based our 2019 earnings estimate of 6.3x and 2.7x, implying ca. 40% discounts to peers’ corresponding multiples that we feel very unreasonable (after the decision on inclusion of the Romanian stock market in FTSE Russel Emerging Market Index effective from September, 2020.

 

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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