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Decent across divisions but weak on cash and net debt Overall, OMV''s fourth quarter results were positive divisionally, with Upstream and Chemicals marginally beating expectations and Refining posting a stronger beat. Total Group Operating Result thus came in 7% ahead of cons. estimates. However, cash flow (pre-WC) fell 15% short and the increase in net debt to EUR2.1bn provided reasons to offset the divisional performance strength. Results aside, there''s a lot more going on for OMV with dividends and deals The day before results, OMV announced its total dividend for 2023 of EUR5.05/sh (same as 2022''s) with a base of EUR2.95/sh and a special of EUR2.10/sh. We believe this was a strong positive surprise, particularly as cons. estimates had been expecting a total of EUR4.17/sh, and it reflects the company''s commitment to pay out at the upper end of its 20-30% of CFFO range, for the first time. Discussions are still on-going with ADNOC regarding the Borealis and Borouge merger, as OMV is determined to get out an equal ownership structure. Finally, the announcement of the Malaysian JV sale to TTE will bring a decent EUR900m of cash this year. First guidance for 2024 shared, bit of a mixed bag On the positive side, an average realized gas price of EUR25/MWh is more optimistic than our bearish view on gas for the year. The expected petchem margins are all slightly lower than 2023, though better than we had anticipated. Both steam cracker and refinery utilization rates are to be up 5 and 10 pct pts, respectively, vs. last year, which will support greater volumes. However, on the negative side, production guidance is a wide range of 330-350kboe/d, depending on the timing of the Malaysian divestment, along with additional uncertainties with Libya and natural declines as well. Capex guidance brings an uplift from 2023''s EUR3.7bn to EUR3.8bn, as the development of the Neptune Deep project in Romania will require greater cash outlays in the next few years....
OMV OMV AG
We have adjusted our estimates post 4Q23 trading statement release. We do not consider the changes to be material; our rating is unchanged.
We have adjusted our estimates. We do not consider the changes to be material; our rating is unchanged.
Time with OMV''s CEO provided some helpful insight for the near and longer term We had the pleasure of hosting OMV''s CEO, Alfred Stern and Head of Investor Relations, Florian Gregor for a roadshow in London yesterday. Unsurprisingly, in our view, the conversations predominately revolved around the on-going Borealis/Borouge deal, the chemical sector''s weakness, and the company''s overall investment case. Management''s key messages reiterate the integration strength and growth opportunity On the deal, the messaging reemphasized that a merged Borealis/Borouge entity would provide a combined platform of growth with competitively positioned assets, options for further profit improvement, and strategic positioning of market segments, while also simplifying the inherently complex ownership structures with ADNOC throughout the various groups. Despite being at the bottom of the chemicals cycle, OMV iterated how it offers differentiated products at scale and is expanding with advantaged feedstock costs. Its unique integration enables strong cash generation through cycles and supports the progressive dividend policy. The strategy remains the same, in time, to become a sustainable fuels, chemicals, and materials company. Finally, management highlighted how there are significant growth opportunities within this strategy, and they will continue to drive that forward. All in all, we do agree that its integration provides relative operational resilience and we do see the growth upside in a successful deal but also in its chemical''s strategy overall. However, we still believe the risks are to the downside for OMV relatively The key takeaway for us, however, is the reoccurring theme of uncertainty for the stock currently. Commodity macro aside, be it the Borealis/Borouge deal, the pace of recovery of the chemicals sector, or any potential changes to distributions, there are a lot of uncertainties which could have a material impact on the stock, depending on the...
Another challenging quarter for OMV due to softening chemicals margins and the natural decline in oil and gas fields. Adjusted operating profit missed the consensus estimates by 10% while net profit came in 34% short. Despite slightly better contributions from the Borealis JVs, chemicals still posted losses. The outlook for the remainder of the year does not look that promising due to declining oil prices on the back of the higher supply, decreasing refining margins and the struggling chemicals business.
New details emerge yesterday regarding the potential Borealis and Borouge merger Headlines yesterday shared important details on the possible structure of the potential Borealis and Borouge merger. The deal consideration seems broadly unaltered from the initial news in July, with Borealis valued at c.EUR10bn and Borouge at c.EUR20bn, resulting in a c.EUR30bn merged chemicals giant. But sources now indicate that OMV and ADNOC would each hold 47% of the new entity, with the remaining 6% as free float. As a result, this means that OMV would be required to inject c. EUR1.7bn of cash into the joint entity, to reach an equal stake to ADNOC. Given the overlapping ownership of the relevant companies, we illustrate the easily confusing calculations that result in the EUR1.7bn cash injection, and we provide some alternative equity scenarios as well. The EUR1.7bn cash injection is likely less than the market was expecting To recap our initial thoughts from July, Borouge appeared to be significantly overvalued on a traded multiples basis, while the non-Borouge business of Borealis had been materially undervalued on comps basis as well (considering the c.EUR10bn deal value for Borealis, along with the trading value of its 36% stake in Borouge). As to the 47% stake and resulting EUR1.7bn equity injection, we believe the market had been expecting that a larger cash injection would have been required of OMV. This is likely reflected in OMV''s shares closing up +4.8% yesterday. Borouge''s shares ended the day up +0.4%. Overall, we believe this information helps clear the dust around what was, in our view, the largest area of concern and uncertainty of the potential merger since it surfaced. Negotiations continue, updates may be announced in the coming weeks We would like to highlight that the companies have not yet made any official statements. As such, the details shared are unofficial at present. But the two sides are expected to be meeting ''as soon as...
Disappointing results and a ''low-quality'' cash figure A challenging quarter of results for OMV, which is particularly disappointing given the oil price and refining margin strength over the quarter. Group CCS Operating Income of EUR1.3bn, was 10% below the street''s expectations of EUR1.5bn. The disappointment carries through the divisional results and to Net Income, which fell 34% shy of cons. estimates. The only positive element, in our view, was the robust cash flow figure (pre-WC). At EUR1.9bn, it was 19% ahead of estimates. It benefited from a EUR220 dividend payment from Borouge, but also ''Other Adjustments'' of EUR450mn, attributable to booked but not paid cash tax and solidarity tax payments, as well as impairments. So, while the cash figure was positive, we believe the ''low-quality'' behind it downplays any reason for material optimism. Updated guidance brought upon an uplift to oil price and refining margin, which isn''t a surprise, and a marginally increased polyethylene margin is offset by the negative impacts of a lower ethylene margin, steam cracker utilization, and refining utilization. Divisional weakness despite a favourable macro environment Despite higher realised crude and gas prices this quarter, OMV missed the cons. estimates in Energy, with its CCS Operating Income of EUR942mn, 9% below estimates. The biggest disappointment, came from Fuels and Feedstock, with its Operating Income of EUR418mn missing street expectations by 17%, even with the elevated margin environment and a higher utilization rate sequentially. Finally, in Chemicals and Materials, the posted Operating Income of -EUR11m, was better than consensus, though we feel that it''s hardly a positive takeaway. For us, the outlook remains challenging for OMV Some relief was provided with the clarification that the changes to the Romanian fiscal policies have no effect on OMV''s current concessions. But it was heavily countered by reminders of the on-going challenges in...
Adjusted operating income missed the consensus by 7% and was down by 60% yoy, driven by lower-than-expected results in the Chemicals business. Cash flow from operations was weak but positive after a €600m working capital release but was still down 50% yoy and 92% qoq. No details were forthcoming concerning the Borouge/Boreais merger with ADNOC. Oil prices above $80/bbl will be supportive, Q3 product spreads could result in higher refining but the chemicals outlook does not look that supportive.
Disappointments across all key headlines, notably cash flow OMV''s second quarter results followed along with that of a sector suffering from commodity price declines, challenged margins, and prolonged macroeconomic pressures. Group Operating income of EUR1.2bn was 7% below cons, while Net income of EUR472mn was a 4% miss. However, the most notable miss was the pre-WC CFFO. With two out of six tranches of the annual Norwegian tax being paid (EUR1.2bn) in the quarter, along with an outflow for the solidarity tax in Romania and Austria (EUR0.4bn), the net CFFO figure came in at negative EUR375mn. Overall, the results were disappointing even after post-trading statement downgrades. Earnings misses across all divisions The Energy division suffered from significantly lower production QoQ, down 23 kboe/d to 353 kboe/d, with planned maintenance/natural declines impacting Norway, Malaysia, UAE, and Romania volumes. Combined with a weaker commodity price environment, the segment''s Operating Result of EUR895m was 2% below estimates. The Fuels and Feedstock result only came in 1% below consensus. Even with the refining margin almost halving to USD7.6/bbl, strong retail sales volumes and a reduction in ADNOC Refining''s decommissioning provision helped offset the material margin decline. However, the largest miss from a divisional standpoint came from Chemicals and Materials, with an Operating Result of EUR7m, vs. consensus expectation of EUR70m. Despite resilience in monomer margins QoQ, lower sales volumes, utilization, and negative inventory effects impacted the division materially. Downward annual guidance revisions OMV additionally provided an updated guidance for 2023, which brought downward revisions across several key operating metrics/expectations. Lower oil price expectations, lower realised gas price, weaker refining margin, lower petchem margins, and lower refining and steam cracker utilization rates will affect earnings negatively for the second...
If they materialise, the talks between OMV and ADNOC concerning the merger of Borealis and Borouge could create a $30bn chemicals giant and pave the way for further growth based on both market expansion and product diversification. OMV could own around c.38% of the new entity with a value of around €12.7bn. Furthermore, the merged entity will reinforce the integration and simplification of operations and could also allow for further growth in the petrochemicals sector with acquisitions and asset swaps.
News reports yesterday stated OMV and ADNOC are having discussions Headlines yesterday afternoon shared that the companies are having talks to discuss the potential merger of Borealis and Borouge. The indication is that Borealis could be valued at USD10bn, resulting in a USD30bn merged chemicals giant. However, it appears that the talks are in its preliminary stages and formal negotiations may be a few weeks away. OMV''s shares closed yesterday up 7.4% off the back of the news and Borouge''s shares ended the day up 0.38%. We believe the move to OMV''s share price was aggressive, as explained further on. We ran the numbers and a few things stand out to us The USD10bn consideration for all of Borealis is USD1.1bn above our calculation of an 7.5x EV/EBITDA multiple-based implied valuation, a c. 12% premium. For OMV, with its 75% stake in Borealis, this would be a premium of USD0.8bn, which represents 5.8% of OMV''s USD14.2bn market cap (at Monday''s close). Given this, we feel that the 7.4% move was aggressive. While the 12% premium seems like a positive outcome, it''s important to consider that Borouge is publicly listed. As such, Borealis'' 36% stake in Borouge is valued at USD7.9bn. In essence, the USD10bn consideration should reflect this USD7.9bn and the remaining USD2.1bn is therefore the implicit value for Borealis ex Borouge. However, our EV/EBITDA multiples-based valuation, using a 7.5x average chemicals peers'' multiple, places Borealis ex Borouge at an implied valuation of EUR5.5bn, 2.6x that of what''s implicit in the reported consideration. In short, Borouge appears to be significantly overvalued, while the price implicit for the rest of Borealis appears to be undervaluing it significantly. However, it is still very early on and not much is known Little has been shared at present, as the companies have not yet made any official statements. As such, we are working off the limited details shared within the reported news. Many important elements...
OMV posted above-consensus results with an adjusted EBIT of €2.1bn (-10% qoq), supported by the refining and core energy business while chemicals continued its lower performance due to weak margins and declining demand. The operating cash flow excl. working capital was strong at €2bn, facilitating further deleveraging. With gearing at 2%, OMV enjoys a healthy balance sheet that will enable a maintained competitive dividend and the company to capitalize on a potential acquisition.
Upstream and Refining performance offset Chemicals weakness OMV''s first quarter results itself were quite robust overall. Group Operating Result of EUR2.1bn was 12% ahead of consensus estimates. We do believe the street had been skewed to the downside into results, even after better-than-expected markers from the trading update. Though, the results were just marginally ahead of our estimates overall. In Upstream, the 19% beat to cons. was supported by a solid EUR358mn contribution from its Gas Marketing and Power business. While Refining''s 16% beat was driven by strength from ADNOC Refining. Chemicals was 10% lower, suffering from weaker margins and consumer products demands. Results aside, the story lies in the outlook ahead. Outlook for the year not materially altered, but a few negative updates provided OMV has remained conservative for the time being, refraining from altering its guidance on oil, gas, and chemicals margin expectations for the year. However, there were three negative adjustments/comments made during the conference call. Firstly, the average refining margin for the year is anticipated to be at the bottom end of the provided $10-15/bbl range. Secondly, the average tax rate for the year has been bumped up from being in the high 30s, to mid-40s now. Lastly, group capex (inc. leases) has increased from EUR3.7bn to EUR3.8bn, with extra costs incurred from not yet being able to sell the Nitro fertilizer businesses and from additional costs in relation to the Kallo PDH plant in Belgium. With the re-tendering of PDH plant, the updated plan sees the project starting in 1H25 and it will face ''a substantial increase in costs'' for the next two years. However, despite the decent results, the story remains unchanged for us While we did think that OMV''s results itself were good, the longer-term story for the company hasn''t shifted in our view. Its current FCFY may seem attractive, but this is augmented by the consolidation of Petrom, which...
Unanticipated production decline (and more) lead us to downgrade to Underperform While OMV''s fourth quarter results were below expectations, more disappointing in our view was the newly shared outlook for 2023. Natural declines are greater than previously anticipated and with key maintenance work, production will fall to c. 360 kboe/d, a c. 9% drop compared to consensus estimates. Paired with weakening commodity prices and chemicals margins falling an estimated 11% on average YoY, we estimate operating income to fall 24% vs. last year. At present, we struggle to see the upside for OMV in the year ahead. Sequential downgrades leave limited scope for distributions increasing Decreased production guidance, falling commodity prices, and weakening chemicals margins all lead to OMV''s CFFO decreasing c. 25% YoY in 2023e. We see limited scope for shareholder distributions to rise above the lower end of the 20-30% of CFFO range, leaving its cash return yield (9.5% in 2023) less attractive than peers. In addition, the effects of consolidation (51% stake in listed OMV Petrom) distort OMV''s ''accessible'' FCF. Our assessment of a more appropriate FCF suggests a FCF yield of c. 15% in 2023, slightly below the average of its European peers. Risks skewed to the downside - we now view OMV as a relative underperformer in the sector Given the current near-term outlook for OMV, we struggle to see catalysts that would support a meaningful uplift to its earnings expectations. An Upstream transaction could lead to a potential rerating of the stock, but with nothing concrete at present, it''s too early to make a call on that. Additionally, our view that Austrian and Romanian assets would likely not be part of a transaction, suggests the retained Upstream and refining exposure would minimize the scope of any chemicals rerating. Rather, we see greater risk to the downside, both on an absolute basis and on a relative-to-peers basis. In our space, we see other names with...
Softening market environment, inventory effects, and operational issues hamstrung the operating results in the chemicals business, dropping 73% in Q4 FY2022 on a quarterly basis. The record annual profits and operating cash flow, however, enabled OMV to announce a record high dividend in the company’s history to maintain investor confidence and benefit from the all-time-high results. After a turbulent year, FY2023 should stage another similar show across businesses.
Abu Dhabi National Oil Company’s acquisition of Mubadala Investment’s 24.9% stake in OMV could bring valuable opportunities for OMV as the two companies have benefited from joint investments in chemicals as well as upstream oil and gas production and have common goals to expand valuable chemicals investments.
OMV surprises us with a cash flow linked dividend policy While Christmas Day is still 11 days away, we are pleasantly surprised to see the press release from OMV last night, outlining its new dividend policy. To quickly recap, the third quarter results came with an announcement of a special dividend of EUR2.25/sh, to be paid with the regular dividend in June 2023. Management indicated its intent to amend the dividend policy, to allow for specials to be used to reward shareholders in the future, but no further details were shared. It was stated that the policy would require approval from the AGM in May 2023. As such, details on the policy prior to yearend were certainly not anticipated. As to the new policy, OMV now allows special dividends to be used as an additional instrument and aims to distribute 20-30% of Group operating cash flow (inc. WC) via its regular dividend and special dividend, if its leverage ratio is below 30%. The linkage to cashflow is definitely a strong positive outcome for shareholders. Big increase to total cash distributions, finally making it competitive to peers Prior to the update, we had forecast the distribution as a percentage of group cash flow to be 17% (with the special) and 10% for 2022 and 2023 respectively. A minimum of 20% for 2022 suggests the base dividend is to increase by around 30% to EUR3.0/sh, much more than the c.6% the market had been pricing in. Total cash return yield for 2022 and 2023 is now much more compelling, at c. 11%, and it''s now more in-line with its Euro peers. While the policy intends to exclude specials when the leverage ratio (net debt/ net debt+equity) is above 30%, it''s worth noting that OMV''s balance sheet has experienced rapid deleveraging, bringing its leverage ratio down to c. 3% by year end. Though as we saw two years ago, all it takes is a large acquisition for that ratio to spike back up. All that glitters isn''t gold, we remain cautious ahead The distribution''s linkage to...
OMV delivered two positive surprises in the Q3: a good consensus beat and an attractive special dividend of €2.25 per share for the 2022 financial year to close the pay-out gap with its peers. We expect this generous dividend policy to protect the shares from downside pressure. However for the stock to remain attractive for next year, a margin improvement will be key.
Alas, OMV is finally giving back more to shareholders After quarters of disappointment from not getting any positive updates to the distribution policy, OMV shareholders can now let out a big sigh of relief. The quarter''s results were solid overall, but the spotlight is on the announcement made the night before. OMV is proposing a special dividend of EUR2.25/sh, to be paid out in June 2023 with the regular dividend. A substantial special, in our view, keeping in mind that the FY21 base dividend was EUR2.30/sh. Management indicated its intent to update the distribution policy so specials can be considered in the future and used as a tool as and when appropriate to reward shareholders. How special, or not, it will be will only be known for sure once the framework is established after the AGM in May. Though management''s commentary on the conference call with particular emphasis on wanting a competitive dividend, leaves us thinking that there could potentially be more upside to distributions. Strong Upstream and RandM performance more than made up for disappointing CandM Group Operating Result was solid at EUR3.5bn, beating est. by 9%. Upstream continued to deliver, the EUR2.7bn result beat est by 11%, benefiting from a much higher realized gas price of EUR82/MWh (vs. EUR57/MWh in Q2). Refining and Materials surprised by 23% with a EUR600mn result. Despite the impact of Schwechat damages, Gas and Power from Eastern European carried the division''s performance. The Chemicals and Materials result was the laggard, down 44% vs. market at EUR214mn, with much lower monomer and polymer margins and sales volumes QoQ. Cash generation was robust, with pre-WC CFFO beating expectations by 22% at EUR2.9bn. The special is definitely appreciated, but till we learn more, it''s just a one-off Key updates post results reflect higher tax due to greater Upstream contribution, weaker near-term Chems results, and the special dividend to be paid out in 2Q23. We est the special...
While incidents and maintenance hit the refining segments hard in Q3, chemical margins suffered from mounting recession concerns and falling demand. Looking ahead, there could be a silver lining for the refining business in Q4, but hardly for chemicals. E&P remains a solid profit maker, but this could change in H2 FY2023 were recession to trigger a major drop in oil and gas prices
OMV has seriously underperformed this year, down 17% vs an average 30% rise across our coverage. Given how enticing its dividends look, what could possibly keep you away? We''d highlight risks for its chemicals business, gas marketing and Russian exposure, and lower total cash return than peers, all of which keep us on Neutral. Our TP drops to EUR50 from EUR55. The case for: A compelling valuation OMV has a 2023E PE ratio c. 60% lower at 3.7x vs. the peer average of 6.3x. Meanwhile its FCFY is solid at 22.6% vs. 17.3% and it has one of the highest D/Ys in our coverage at 6.3%. OMV certainly looks like silk for the price of cotton. Caveat #1: Not enough chemical attraction With supply outpacing demand, downward pressure on petchem margins is ramping. Furthermore, OMV generates most of its cash from Upstream and is weakly positioned to benefit from commodity prices, while uncertainty around the Chems MandA strategy and execution ability leave us cautious. Caveat #2: Gas marketing and Russian bears There are lingering unknowns, namely on volumes sourced from Gazprom, its gas supply obligations, and the costs associated with hedging and buying volumes at elevated spot prices. Caveat #3: Dividends aren''t the whole cash story OMV has a high D/Y, but all our other companies buy back shares, leaving OMV''s total cash return yield the weakest in our coverage. Even in upside scenarios, cash return still lags. We see greater value elsewhere: Neutral, EUR50/sh TP We continue to base our TP on a FCF target yield of 15%, reflective of the uncertainties within its chemicals business, a weaker chemicals outlook, weaker upstream price exposure, non-OECD upstream exposure, exposure to Russia, and weaker cash distributions. Ultimately, we prefer BP and Shell, which have higher commodity price exposure and much higher cash return yields.
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