27.11.2017

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RCB confirmed OMV at HOLD, TP EUR 55.5 - Waiting for new share price triggers

Higher refining margins, seasonally stronger consumption of motor fuels and full availability of refining capacity helped OMV report better than expected downstream earnings in 3Q 17. Although 3Q upstream earnings came in below expectations, being hurt by the stronger EUR and negative hedging results, the output in Libya (28 kboepd, +17% qoq) as well as the opex/boe (USD 8.8, only 1% higher qoq) both surprised us positively. Consequently, we have revised upward our upstream earnings projections, assuming higher than previously expected production in Libya (25 kboepd vs. 15 kboepd previously) and 5% lower opex/boe (2017-21e average), which have lifted our clean CCS EBIT by 13% and 11% in 2018-19e, respectively. We set our new 12m target price at EUR 55.5 (EUR 50.0 previously), however, we keep OMV on HOLD. With the Brent oil price expected to stay between USD 60-65/bbl and the refining margin seen marginally lower, we believe that the above-mentioned developments in 3Q should be reflected in the current price. Completion of the Achimov IV/V acquisition or the announcement of a new major investment could trigger further market reactions, however, we do not expect any major announcements until the next Capital Markets Day, which is scheduled for March 13, 2018.
 
Changes to our forecast: Production in Libya continued to ramp up in 3Q 17, reaching an average daily output of 28 kboepd. It seems that the security situation in Libya has stabilised, therefore, we decided to revise upward our production assumptions for Libya, projecting an average level of 25 kboepd beyond 2017. Additionally, we have lowered the projected 2018-19e opex/boe by USD 0.4 (ca. 4%) to reflect the cost efficiencies that OMV has achieved this year. We have fine-tuned our 2018-19e projections for the R&M segment, assuming a bit stronger earnings generation across all sub-segments, namely petrochemicals, refining and marketing. Gas and Power earnings are also seen modestly stronger than previously on higher gas trading volume and slightly wider spark spreads.
 
Valuation: Our DCF-derived 12m target price of EUR 55.5 implies less than 10% upside potential, which supports our decision to keep OMV on HOLD. Based on our 2018-19e projections, OMV is trading broadly in line with its regional oil-integrated peers in terms of EV/EBITDA and P/E, which supports our neutral view on the company.

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OMV Kanne

8750

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