PGNiG – Spot gas prices: a bad advisor
Spot gas prices: a bad advisor
We raised our rating for PGNiG in April to accumulate, hoping for a rebound in gas prices in the coming months. However, for the time being spot contracts are testing new minima, and the Company's stock price has dropped by another 10%, which places PGNiG among the worst investments in the European gas sector YTD. The increasing oil-gas spread doesn’t help (trading risk in the medium term), as well as delayed final result of arbitration, reduction of distribution tariffs & aggressive forecasts of the Management Board in the scope of Capex. Considering the worse environment for the upstream and trade segments this year, we are lowering our EBITDA forecast by around 8%, while maintaining a positive scenario for the following years. With such assumptions, the EV/EBITDA ratio returns to around 4.0x in 2019-20, and the still-strong balance (net cash despite the implementation of IFRS 16) gives a chance to increase dividends (growing budgetary needs) or acquisitions that convert liquidity surplus into EBITDA. In spite of the delays so far, we cannot forget the upcoming arbitration settlement. We are upgrading our rating to buy, while lowering the target price from PLN 6.92 to PLN 6.47.
Polskie Gornictwo Naftowe I Gazownictwo SA Polish Oil & Gas Co (PGNiG) is an integrated natural gas company based in Poland. Co.'s core activity covers exploration and production of natural gas and crude oil as well as import, storage, trade and distribution of gas and liquid fuels. Co.'s scope of activity includes gas trading and commercial support, as well as operation, maintenance and expansion of its distribution system. Co.'s distribution networks comprises over 100 thousand kilometers of gas pipelines (high, upper-medium, medium and low pressure), which cover primarily industrialized and urbanized areas of the country.
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