PGNiG - With Re-Rating In View, Buy For Gas Upturn & Cash
Stocks in PGNiG suffered a 15% collapse in the last few days that is not justified by any fundamental change, and that has caused the Company's performance to become completely disengaged from European peers. Meanwhile the EU natural gas market has recovered from a summer slump at a faster-than-expected pace, and price spreads to imported LNG indicate growth potential this heating season. We maintain that the gas market is poised for a continued forward momentum, and we want to point out that, with Yamal contract prices now linked to EU market prices, PGNiG moving forward can deliver greater earnings consistency with 60% of annual EBITDA derived from regulated public utility services. As such, we believe PGNiG, which is currently trading at a shockingly low EV/EBITDA multiple 25% below the 5Y average, is set for a well-deserved re-rating. Another thing to point out is that, predictably, the market's expectations for PGNiG's 2021-22 earnings have gone up more than 10% since June after the Company fulfilled 60% of the consensus EBITDA forecast in the first half of the year. After updating our view to accommodate more optimistic long-term production targets, we raise our target price for PGN to PLN 5.97 and we upgrade the stock to buy.
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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