Romgaz cut to HOLD, TP RON 33.2 - Looking beyond the dividend rush

Romgazs share price proved surprisingly resilient lately, despite the tumbling international gas prices, helped in our view by robust 1Q 20 results and statements from top state officials signalling a new round of specials dividends from state-owned companies. However, looking beyond a
potential special dividend, we do not see triggers supporting a new rally. We expect domestic gas prices to become much more correlated with international gas prices, as the interconnector with Hungary and Bulgaria should become operational by the end of this year. Moreover, the regulator (ANRE) seems to be also driven to increase this correlation, by initiating a gas release program for at least 20% of domestic gas deliveries with a benchmark price almost equal to CEGH. The proposal has not yet been approved, but it could shape the trend in domestic gas prices starting from 2H 20, when the market is theoretically fully liberalized. In our view, this convergence could imply a downward trend in domestic gas prices, coupled with declining demand due to the health crisis. We believe that domestic demand could recover to pre-crisis levels only next year. Thus, we lowered our upstream estimates by ca. 20% for the coming years compared to our last update in February. We became more bearish also on the outlook of the power business, as the pressure on power prices is becoming visible. The storage business remains regulated, and the regulator continues to allow much lower profitability levels compared to a couple of years ago. Nonetheless, after considering all these risks, we would not see the bottom line coming down below RON 1.1 bn on the medium-term. We cut our recommendation from BUY to HOLD, with a 12m cum-dividend TP of RON 33.2 (RON 41).