PGNiG: Price dream, fjord stream (upgraded to BUY)

We have upgraded our rating on PGNiG to BUY (from Hold), with a revised price target (PT) of PLN 7.44 (from PLN 4.88), offering 20.1% upside. Unprecedented gas prices are boosting PGNiG’s fortunes in 2021, and probably for a while longer. Norway has become the country that should not only replace Russian gas, but also be a source of upstream growth as PGNiG acquires INEOS Norge, gaining an increase in Norwegian reserves, by 69%. As well as the Baltic Pipeline proceeding according to plan, PGNiG has enough LNG contracts to more than fill the expanded LNG import capacity by 2024E. Major investments are afoot, which should reduce PGNiG’s carbon footprint, even as the Polish gas market continues to grow. PGNiG is an attractive target for PKN Orlen, but the timing means that some of the upside may be realised only after the merger. Meanwhile, rapidly-rising prices have squeezed trading and generation profits, even though they have boosted upstream. PGNiG trades at a P/E of 8.1x for 2021E, on our figures, compared to 10.6x for its peers, on the consensus.