Romgaz - 3Q/19 Results Were In Line With Estimates

 

Romgaz - Earnings Revision

Recommendation: Neutral (Accumulate)

Price target (12m): RON 37.1 (unch.) 

Current share price: RON 37.5

 

Romgaz’s Q3/19 Romgaz’s Q3/19 net income came to RON 209 mn (-2% YoY) on sales revenue of RON 916 mn (-6% YoY). In the first nine months of 2019, Romgaz achieved net income of RON 1.19 bn (+19% YoY) on sales revenue of RON 3.79 bn (10% YoY).

Despite an increase in its market share to 59% Romgaz’ sales performance was negatively affected by lower gas consumption (-5% YoY during the first nine months of the 2019). Natural gas production dropped by 3% YoY in Q3/19 to 1.82 bcm, while it remained flat at 3.95 bcm in the first nine months compared to the same period last year. Gas production was supported by new field developments (e.g. in the Caragele field), rehabilitation and well workover works on the main mature gas fields aimed at halting the decline in production, and new commercial discoveries. Electricity production was 58% lower YoY in Q3 and 61% YoY in the first three quarters than in the same periods last year. Storage activity improved on tariff increases (+33% YoY).

 

As a combined result of lower production, higher personnel expenses (+11% YoY), impairment losses (RON 102 mn) on fixed and exploration assets, lowrr royalty payments (-71% YoY) and an increase in gas prices, EBITDA rose to RON 466 nm in Q3/19 vs RON 398 mn in the same period a year ago. We note that the price cap of RON 68/MWh has been applied as of 1 May only for new contracts, and that the steep fall in gas prices witnessed across Europe so far this year has not yet been seen on the Romanian gas market, as more expensive imports coming mostly from Russia filled the widening gap left by falling domestic gas production.

 

In the first nine months of 2019, EBITDA amounted to RON 1.96 bn compared to RON 1.56 bn in the corresponding period of 2018.

 

Free cash flows rose to RON 1.4 bn in Q1-3/19 from RON 940 mn generated in Q1-3/18. As a result, cash and liquid financial assets represented RON 1.15 bn (ca. RON 3.0 a share) at the end of September, or ca. 8% of current mrk cap.

 

We leave our clean EBITDA estimate intact at RON 2.7 bn for 2019 and RON 2.5 bn for 2020. from RON 2.1 bn in 2018 expecting that margin performance remains strong in the coming years on higher storage tariffs and gas prices offsetting increasing costs. We also maintain our net income forecast for 2019 at RON 1.64 bn and RON 1.54 bn for 2020.

 

Romgaz is trading at an EV/clean LIFO EBITDA multiple, based on our 2020 earnings estimates, of 5.7xx, which reflects in line valuation compared with its peers’ multiples.

 

We downgrade Romgaz from Accumulate to Neutral as Romgaz looks fairly valued at the current share price. We keep our 12-m TP, which is based on DCF approach, at RON 37.1 versus current share price of RON 37.5.

 

Our sum-the-parts analysis also shows a NAV of RON 37.5 per share for Romgaz, thereof upstream accounts for almost 75%.

 

 

 

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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