TradeVille: OMV Petrom continues its development – 09.05.2024

OMV Petrom SA recently reported lower results compared to 2023, but remained higher than the averages recorded before 2022. The company announced during this year new development projects and the intention to reward investors with a special dividend, according to a report prepared by the Analysis Department of TradeVille.

OMV Petrom is the largest integrated energy company in South-East Europe, with an annual group oil and gas production of approximately 43 million boe (barrels of oil equivalent) in 2022. The group has a refining capacity of 4 .5 million tons annually and operates a high efficiency power plant of 860 MW. On the retail oil products distribution market, the Group is present in Romania and neighboring countries through approximately 780 gas stations, under two brands, OMV and Petrom.

The company’s majority shareholder is Austrian, OMV Aktiengesellschaft – one of the largest listed industrial companies in Austria – which owns 50.1% of OMV Petrom’s shares, and 6.4% is owned by other foreign shareholders.

Romanian shareholders have a share of over 45% of the company’s share capital, being represented mainly by the Romanian state, through the Ministry of Energy, which owns 20.3%, and the remaining 24.75% is owned by Romanian pension funds and of about 500,000 individual investors and other entities. It should be mentioned that OMV Petrom is among the most popular companies among retail investors at BVB.

• The price of oil, under downward pressure

At the most recent meeting of OPEC+ members, from the beginning of April, the decision was made to maintain the voluntary reductions imposed last year, which amount to 2.2 million barrels/day, to be exact almost 7% of the total production of OPEC (crude oil and other liquids). The voluntary reductions, implemented in 2023, were aimed at maintaining the price of fossil fuels around 100 dollars/barrel, this being a price desired by the international organization of major producers. However, the slow recovery of the Chinese economy, the addition of supply by the US and other macro factors created the conditions for the maintenance of a negative trend in the price of crude oil for most of the past year.

Currently, the price of Brent oil oscillates slightly below the level of 90 dollars/barrel, being under downward pressure at the beginning of the current week, amid the discussions regarding the ceasefire between Israel and Hamas, as well as concerns about inflation in the USA.

Analysts expect the macro situation of the oil market to improve modestly in the second quarter of this year, before peaking in the third quarter and moderating in the last three months.

• OMV Petrom’s results, weaker than in 2023

For the first three months of the current year, analysts expected OMV Petrom to obtain a net profit of 1.57 billion lei (-16% annual rate), excluding special items. The macro environment of 2024 was characterized by lower natural gas prices, higher production costs and higher depreciation. Thus, OMV Petrom reported revenues from sales of 8.5 billion lei (-9.8%), registering revenue decreases in all business segments due to higher costs and weaker sales.

While operating expenses reached a level of 7.1 billion lei (-11.5%), the operating result totaled 1.6 billion lei, down 1.1%.

Scoietatea reported a net profit of 1.4 billion lei, 5.5% lower than in the first three months of 2023 and below analysts’ estimates. Even if the results are down compared to the same period last year, they remain higher than the averages recorded before the year 2022, which was marked by an important increase in energy prices. Among the elements that influenced the company’s financial performance are the decrease in hydrocarbon prices, the reduction of production by 4%, mainly due to natural decline, the increase of 10% in production costs, the decrease of the refining margin by 24%, the decrease in the utilization rate of of the refinery to 93% due to unplanned shutdowns and the 4% increase in the volume of sales of refined products.

During 2024, the SNP managed to make progress in the direction of development. Thus, the company managed to test an innovative carbon capture and utilization facility at Petrobrazi, signed the financing for two green hydrogen production projects with a capacity of 55 MW and announced in January the largest acquisition of green projects in Romania .

• The 2023 trend continues

The results of 2024 represent a continuation of the trend of decreasing numbers compared to 2022, which was observed during the last year, when price decreases started to become visible in the company’s results. This negative dynamic is a normal one, since the exorbitant price increases in 2022 have brought much higher financial results than what companies can achieve under normal macro conditions.

Thus, OMV Petrom finished the year 2023 with sales revenues of 38.8 billion lei (-36.7% compared to 2022), while the net profit represented just over 4 billion lei (-60.9 %). However, the results were well above the annual averages of the last five years, with operating income being 53.1% higher than the median, while the net result exceeded the median by 10.9%.

• What to expect in 2024 – forecasts and dividends

The year 2024 will be a period when the company will actively continue the investment process in the Neptun Deep project, which should start production in 2027. To date, more than 80% of the execution agreements have been awarded, among the companies that have were involved in the installation of the platforms, including Transocean Barents, Halliburton Romanis and Sapiem, the value of the contracts amounting to around two billion euros.

On the operational side, OMV Petrom estimates that the Brent crude oil price will average $80/barrel in 2024, 3.2% lower than in 2023 and 21% lower than in 2022. The margin of refining, which shows the level of profit that the company obtains from refining a barrel of oil, is estimated at $10/barrel in 2024, compared to $14/barrel in 2023, while the demand for oil products, gas and electricity at the national level is expected to increase.

The company does not escape the surcharge this year either, having to pay 350 lei in 2024 for each ton of crude oil processed in 2023, the payment due in the summer of 2024, and the amount amounts to 1.24 billion lei. Also, from the beginning of 2024, a new turnover tax was introduced, which is 0.5% and will have an annual impact of less than 250 million lei.

However, the company also comes with good news for shareholders, who will be rewarded this year with a basic dividend 10% higher than last year, as the dividend policy of OMV Petrom, which has proposed to increase the basic dividend every year with a rate between 5% and 10%. Thus, the gross dividend per share approved in the annual AGM amounts to 0.0413 lei/share. Also, the company’s management announced the intention to propose a special dividend in 2024, he notes TradeVille.

• OMV Petrom shares, on the rise

OMV Petrom shares managed, in the first three months of the year, to maintain an accelerated growth rate, bringing a return of 21.8% to investors’ portfolios. The month of April is characterized by a period of price consolidation, which is in an extended position against the 200-day simple moving average. The upward trend of the shares has already been maintained for four years, having been established in the first half of 2020 Among the main drivers of the price increase are the company’s ability to generate stable profits, the company’s strategic importance for Romania, the stable growing dividends and the promises to implement the Neptun Deep project, the operational works of which have already started.

The share price is currently at an all-time high.

• Opportunities and risks of an investment in OMV Petrom

timely

-Status: The largest Oil&Gas company in Romania has a well-established position in the market, being also the largest integrated energy company in South-Eastern Europe.

-Deep: Implementation of the Neptun Deep project – the largest natural gas project in the Black Sea area, for which the company made the final investment decision last summer and awarded drilling start contracts worth about two billion lei in 2023.

-Diversification: OMV Petrom acquired a company that owns the largest charging network for electric vehicles in Romania and half of a renewables developer with a 1 GW project. Thus, the company expands far beyond the traditional business of fossil fuels.

-Dividend: Good level of the dividend – the company respects its dividend policy, increasing this year by 10% the basic dividend.

-Analysts: Analysts’ favorable recommendations – the estimated target price is now 0.626 lei/share, 7.9% higher than the closing price on January 12, 2024. Thus, out of the 11 analyzes carried out for the company, six recommend “buy “, and five give a “hold” recommendation.

risks

-Politics: Unstable fiscal and political system in Romania – the government introduced during 2022 several surcharges that affected the company’s cash flows. At the same time, these fiscal policies continue in 2024.

-Limitations: The difficulty of expanding, given that it only operates at the national level.