PGNiG – Updating Our Models to Reflect a New Reality
Amid huge volatility across all global markets (energy, currencies), underpinned by economic uncertainty, it is next to impossible under the current circumstances to construct a reliable base-case scenario for PGNiG. Nevertheless, with our pre-pandemic models for the Gas Utility rendered completely obsolete, we decided to update our view to reflect the developments to date. Below we analyze three scenarios: Best, Base, and Worst, to help better understand the possible risks associated with investing in PGN in the current environment. We have also revised our three-year view on energy prices, and after cutting average expected rates by 36% for oil and 19% for natural gas, and after factoring in probable falls in volumes and growth in trade receivables, we lower our target price for PGN from PLN 3.88 to PLN 3.24 per share, and we keep the stock as a hold after the >30% rally observed in recent days. We want to stress that it is gas, not oil, that is the main determining factor of PGNiG's earnings performance. As a well-diversified business with a strong balance sheet, we see the Company as weathering the crisis relatively well compared to most of its European peers from the E&P sector (the market seems to agree, as reflected in respective ytd performance). We hope PGNiG's new Management Board can reinforce this view by communicating their vision for the years ahead in the upcoming guidance update (the risk profile might change if the recently-signaled CAPEX boost is confirmed). The forthcoming decision in PGNiG's arbitration case against Gazprom remains a potential near-term catalyst with capacity to boost valuation by more than PLN 1 per share, though its original end-March date might be pushed back due to the current epidemic.
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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