Conpet: Go with the oil flow (HOLD – initiation of coverage)

We initiate coverage of Conpet, the Romanian national oil transport company, with a HOLD rating and a price target (PT) of RON 86.8/share, implying 6.3% upside. We like Conpet for: i) its stable top line and profitability; ii) its superior relative returns vs. its local utilities peers; iii) its capacity to continue paying dividends at an attractive yield (6.1-7.3% over 2019-21E), despite increasing capex; iv) its decent profitability outlook in the medium/long term, despite a shift from domestic to imported crude; and v) the long-term oil product consumption outlook in Romania, which still looks healthy. On the negative side, we see: i) the lack of regulatory visibility; ii) the potential impact from the demand shock caused by the lockdown measures; and iii) its high dependency on two large customers. It trades at a 32.8% premium vs. the overall peer group and 34.3% to its local peers, on our 2020E P/E of 15.5x, which we believe is justified by its superior profitability and its more attractive dividend profile. Further upside is limited, however, in our view, particularly as the balance of risks is tilted towards the downside in the near term.