Romgaz - 4Q/19 Clean Results Were In Line With Estimates

 

Romgaz: Instant Earnings Comment

Rating: Neutral (unch)

12-m TP: Under revision (prev. RON 37.1)

Current share price: RON 33.9

 

Romgaz’s Q4/19 net income came to RON 243 mn (-34% YoY) on sales revenue of RON 1.29 bn (-17% YoY). In 2019, Romgaz achieved net income of RON 1.43 bn (+4% YoY) on sales revenue of RON 5.1 bn (+3% YoY) compared to our net income estimate of RON 1.64 bn on net revenue of RON 5.7 bn. The difference between our estimate and quarterly results came mostly from impairments on receivables (RON 85 mn) and certain investment projects as a consequence of abandoning investment projects in exploration and production wells.

 

Despite an increase in its market share Romgaz’ sales performance was negatively affected by lower gas consumption. Natural gas production dropped by 6% YoY in Q4/19 to 1.33 bcm from 1.41, while it was 5.28 bcm in 2019 compared to 5.33 bcm in 2018 (-1% YoY). 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 28% lower YoY in Q4/19 and declined 49% YoY in 2019 due to still ongoing investment works at the new CTE Iernut power plant. Storage activity improved on tariff increases.

As a combined result of lower production and impairment losses (RON 102 mn) on fixed and exploration assets and receivables, lower royalty payments (-23% YoY) and an increase in windfall taxes, EBITDA fell by 11% YoY to RON 599 nm in Q4/19. In 2019, EBITDA amounted to RON 2.56 bn compared to RON 2.24 bn in 2018. We note that the price cap of RON 68/MWh has been applied as of 1 May 2019 only for new contracts, and that the steep fall in gas prices having been witnessed across Europe since the last quarter of 2019 has not yet been seen on the Romanian gas market.

 

Romgaz spent RON 1.03 bn on investments last year (-11% YoY) compared to RON 1.245 mn planned for FY2019. Investments were roughly equally allocated on exploration, maintenance and the new CCGT Iernut power plant.

 

Free cash flows rose to RON 2.4 bn in 2019 from RON 2.1 bn in 2018. As a result, cash and liquid financial assets represented RON 1.44 bn (ca. RON 3.7 a share) at the end of December, 2019, or ca. 11% of current mrk cap.