Petroleum Industry of Serbia (NIIS)
After reporting worse than expected first quarter, the Petroleum Industry of Serbia (NIIS) significantly improved the financial results in the period April-June, but net profit on the semi-annual level remained below the result seen in 2017. This was largely contributed by one-time factors, which, with a solid crude oil price recovery, gives good prospects that the year-end level will be exceeded.
In the first half of the year, NIS recorded revenue growth of 12.2% to RSD 120.4bn, primarily due to 36% crude oil price jump (USD rate weakened by 14%). EBITDA rose 6.3% to RSD 24bn, while the net profit weakened by 7.4% to RSD 11.5bn (a different calculation of depreciation and the absence of positive FX differences affected the bottom line). Net profit in the second quarter rose from RSD 7.0bn last year to RSD 7.8bn in 2018. Operating cash flow (OCF) has halved to RSD 9.4bn, partly due to the high base, and partly due to higher purchases of crude oil.
¤ Dividend - As previously known, shareholders will receive dividends totaling RSD 6.9bn or RSD 42.61 per share from the last year's profit. The dividend will be paid on August 27th.
¤ Oil production - The trend of oil production decline has continued (-4.5%), despite significantly higher prices on the world market. The management has high production expectations for the Romanian basin, which in the future could end this trend.
¤ CAPEX, deep-processing - NIS invested RSD 17.2bn (+72%) in 1H, while more than a third of the funds were invested in the deep-processing project, which will make majority of this year's investments totaling RSD 46-47bn (compared to RSD 26.5bn in 2017). This current key project for NIS should contribute to the annual EBITDA indicator with around RSD 10bn starting from 2020.
¤ Valuation - NIS's shares have stabilized at levels slightly below RSD 700 since the ex-dividend day. NIS is currently traded on the expected PE ratio of around 4x, while the expected dividend yield stands at 6.4%, which, adding a positive trend in the world crude oil market, makes this stock extremely attractive. However, the absence of major institutional investors in the domestic stock market and the pressure on the sell side by certain Croatian investment funds made NIS stay in a negative territory during the current year. If the business trend from 2Q continues, despite these negative factors, it is expected this largest domestic company to attract significantly more capital, especially in the ambience of the record low NBS reference rate.
Established in 2007 in Novi Sad, Momentum Securities, privately owned corporate advisory and investment banking firm, is one of the largest providers of brokerage services and related corporate advisory services to owner managed businesses in Republic of Serbia. Momentum Securities is a member of the Central Securities, Depository and Clearing House, the Belgrade Stock Exchange and the Investor Protection Fund and an authorized participant in the Treasury auction platform. As an independent firm, our clients benefit from unbiased and tailored solutions. Our team works with founders, shareholders, boards and management teams to develop their companies by aligning processes, structures and work practices to improve efficiencies and achieve specific performance goals.
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