OMV Petrom 3Q 2012 results were mostly in line with our estimates, but we decided to update our model to include: (i) the expected taxation of the profits from gas price liberalization in 2013-14; (ii) 100% use of equity gas by the power plant but lower prices for the energy sold as part of it would be sold to the regulated market. State officials declared that the government is discussing the taxation of the profits from the liberalization of the gas price and rumours point to a taxation level close to 100%, potentially with the possibility to deduct some investments from the taxable amount. We were previously expecting significant upside from the gas price liberalization, but, in case the taxation approaches 100%, this would no longer be the case. We decided to incorporate into our assumptions this tax of 100%, which leads to a new target price of RON 0.43, versus RON 0.52 as per our previous update. As a result we downgrade our “buy” recommendation to “hold”.
3Q 2012: Results were close to our estimates and consensus and weaker yoy at the net profit level, due to some one-off charges related to a legal case in Kazakhstan (RON 116 mn) and higher financial losses. Unrealized profits of RON 300 mn from the delayed delivery of some refining products burdened the EBIT but should boost partially the 4Q results.
Outlook: Though in our previous update we discounted by 50% the expected impact from liberalization we were still expecting significant upside for Petrom. Our hopes were dashed by the news that these profits could be taxed by 100%. Petrom confirmed that discussions are taking place with the Government on this issue, concomitantly with talks on the future (starting 2015) regulation of royalties. We decided to take into account a 100% tax on these profits, to be applied by the end of 2014. Afterwards we expect royalties to be hiked from around 6.3% of revenues in 2011 to 16% of revenues. We might see some delays to the liberalization calendar approved by the government, as the first price increase for industrial consumers was scheduled beginning of December, one week before parliamentary elections. We see the gas price for industrial consumers unchanged by the end of the year and climbing by some 20% pa over the next years.
We took into account that the power plant uses all-equity gas starting September. On the other hand, Petrom agreed to sell part of its energy on the regulated market, where margins are capped, and thus we assumed lower than previously estimated energy prices for the volumes sold. Furthermore, higher gas price due to liberalization and rising prices of CO2 certificates could dampen the margins for the plant. Regarding the R&M segment, Petrom recorded in 3Q its highest ever profit from the refining segment and thus we lifted marginally our refining margins assumptions going forward.