PKN confirmed at REDUCE, TP PLN 70.0 - Model update: TP cut on weaker macro and lower utilisation
After last weeks earnings release we remain bearish on PKN, cutting our 12m target price to PLN 70.0 (PLN 84.0) and keeping it on REDUCE. We have turned even more cautious with our refining segment estimates (2020e clean LIFO EBITDA -33% yoy) due to heavy maintenance activities planned for this year (i.e. lower capacity utilisation), the less supportive macro environment (i.e. GDP growth slowing down in Poland), a very high base in 2019 (i.e. last years earnings were strongly impacted by temporary supply shortages of motor fuels on the German market in 1Q and 3Q). Consequently, we project 21% lower clean LIFO EBITDA yoy in 2020e (vs. -17% previously). Also, we reckon that the market consensus (2020e EBITDA is 22% ahead of RCBe) should catch up and be revised downwards following fourth quarter reporting, hence we would expect the PKN share to stay under pressure. Moreover, with a 50% higher capex planned for 2020e, two acquisitions on the table and a more challenging market environment in refining and petchem, we believe that the market consensus for a flat DPS yoy (PLN 3.50) is too ambitious (we expect PKN to pay out PLN 2.50 per share).Polski Koncern Naftowy Orlen's activities are divided into three main business segments: the Refining Segment that comprises crude oil processing as well as wholesale and retail trade in refinery products. The Petrochemical Segment that encompasses production and sale of petrochemicals and chemicals. The Retail Segment that comprises of sales at petrol stations. Co.'s basic products include gasolines, diesel oils, light heating oil, Jet fuel, liquid gas, polyetylene, polypropylene, benzene, butadiene, acetone, phenol, glycols, toluen, ortoxylene.
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