Conpet: No growth in sight (SELL - transfer of coverage)

We transfer coverage of Conpet, the Romanian national oil transport company, with a SELL rating and a price target (PT) of RON 72.2/share, implying 14.1% downside. In our view, the volumes transported by Conpet are likely to remain flat in the medium term, in the best case, with the falling domestic volumes transported being compensated by the increasing volumes of import oil transported. Given its monopoly status in oil transport, Conpet’s business is regulated via the cost-plus mechanism. Looking at the trend in volumes, we fail to see why the regulator would allow an increase in profitability and reflect such an increase in higher tariffs; moreover, as we believe that the realised profit currently exceeds the level reflected in the tariffs by the regulator. Therefore, we rather see the tariffs mostly covering the increases in costs, with the net profit shrinking, on average, by 2% p.a. over 2021-29E. We believe that the company is likely to continue to pay out c.98% of its net profit in dividends, which would translate into annual dividend yields of 7.4% over 2021-25E, on average, below our cost of equity estimate of 8.3%.