OMV: Borealis-tic strategy (stays BUY)

We maintain our BUY recommendation on OMV, with a revised price target (PT) of EUR 58.3 (from EUR 31.4), offering 24.5% upside. OMV is coming to the end of an important chapter, with the CEO leaving in August, having transformed the business and taken the first steps towards greater sustainability, to be replaced by a Borealis man. After EUR billions-worth of deals to bolster upstream, growth is no longer the goal. In its place, USD 4.68bn for a bigger stake in Borealis swaps simple products, designed for combustion, for more durable goods. While upstream volumes should stabilise at 500kboepd, Borealis and its subsidiary, Borouge, are investing in growth. In a market where petrochemicals margins are extremely high, oil and gas prices have rebounded and refining margins have only one way to go, we see 2021E as a year of plenty, after one of famine, with the CCS EBITDA jumping to EUR 6.2bn in 2021E, from EUR 3.8bn in 2020. Borealis has stretched the balance sheet temporarily, and the net debt/EBITDA hit 1.88x at the end of 2020, but we see it falling to just 0.72x by end-2021E. We expect greater cash flow generation to support steady increases in the dividend, with 6% yields over the next three years. We forecast an EV/EBITDA of 4.2x in 2021E and a P/E of 6.7x.