Romanian Oil & Gas: just have a little patience (OMV Petrom stays BUY, Romgaz downgraded to HOLD - transfer of coverage)

To be the owners of the biggest gas project in the EU, at a time when the former biggest supplier is threatening, once again, to cut supply off, is perhaps an enviable situation to be in, in our view. The contracts have been signed, construction has begun, and the drilling rig has arrived. However, we still need to wait until 2027E for completion, and the partners are boosting their capital expenditure to record levels. While the future is being constructed, the past continues to fade, with both companies suffering production declines. Gas prices are inflated currently by winter fears, but we expect the downward trend to continue next year. On the flipside, the regulated prices for households should become history in 2Q25E. OMV Petrom is adding renewables capacity and we expect to see the impact of this by the end of the decade. Over the next three years, OMV Petrom will pay a dividend yield of 8.8%, on average, and Romgaz only 4.3%, on our estimates. We transfer coverage of both OMV Petrom and Romgaz in this report, maintaining our BUY on OMV Petrom, with an updated 12M price target (PT) of RON 0.86, offering 19.1% upside; and downgrading Romgaz to HOLD (from Buy), with an updated 12M PT of RON 5.5, offering 3.8% upside.