Polish Oil & Gas: you can’t have one, without the other (PKN Orlen stays BUY, Grupa Lotos upgraded to BUY)
Whether investors buy PKN Orlen (PKN) or Grupa Lotos (Lotos) at this point, we expect them to end up owning shares in the same, combined company. The purpose of this report is to assess the benefits of such ownership, as well as determining which set of shareholders gets the better deal. We believe there is more unrealised value in Lotos, and that its balance sheet should strengthen PKN’s. With the share swap price now fixed, we view Lotos as offering the better value of the two. PKN remains a BUY with a revised price target (PT) PLN 88.5, offering 23.0% upside. We upgrade Lotos to BUY from Hold, with a new PT PLN 93.9, offering 30.5% upside. We have combined the DCF calculations for both companies to come up with a fair value for the merged entity of PLN 90.5 per share. This would imply upside of 35% for Lotos shareholders, and 26% for PKN shareholders.Grupa Lotos is an oil concern which deals with oil extraction and processing and trading of high quality oil products. Co. supplies the market with, unleaded petrol, diesel oil, fuel oil, aviation fuel, industrial oil, asphalt and paraffin, among other things. Co. is engaged in the production and sales of engine oils and bitumen in Poland. Co. maintains oil exploration and production activities in the Baltic, North Sea and Norwegian Sea and operates three refineries in Gdansk, Jaslo and Czechowice, Poland. Co. markets its products in wholesale markets, as well as in retail markets through a network of petrol stations.
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.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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