Company Will Become Southeast Europe's Leading Biofuel Producer By 2030

Key Takeaways

• Initiatives in renewable energy, e-mobility, and biofuels aim to diversify revenue sources and enhance competitiveness in cleaner energy markets.
  
• Strategic financial management, including dividend plans, bolsters shareholder value and could drive investor confidence and EPS growth.
  
• Regulatory and tax changes may increase costs and pressure margins, while substantial capital expenditures and economic challenges could affect liquidity and revenue stability.

Catalysts

An energy company, engages in the exploration and production of oil and gas in Southeastern Europe.

• The Neptun Deep project is expected to commence drilling in 2025 with first gas anticipated in 2027, significantly boosting hydrocarbon production and potentially lowering production costs from $16 to $13 per barrel of oil equivalent by reducing average costs when fully operational, impacting earnings positively.
  
• OMV Petrom's focus on energy transition involves ambitious renewable energy goals of reaching 2.5 gigawatts of capacity by 2030, with significant progress (securing over 2.4 gigawatts by end of 2024), likely to enhance revenue growth from cleaner energy sources.
  
• The expansion of e-mobility infrastructure, aiming to increase electric vehicle charging points from 900 at the end of 2024 to over 5,000 by 2030, is expected to position OMV Petrom competitively in the evolving transport energy market, driving long-term revenue growth.
  
• The investment in biofuels, such as the new SAF/HVO plant with a secured feedstock for the next eight years, is intended to make OMV Petrom the leading biofuel producer in Southeast Europe by 2030, improving both revenue diversification and potentially higher margins from cleaner product lines.
  
• Strategic financial management, including plans for increased base dividends and the possibility of special dividends, reflects a strong commitment to shareholder returns, which could improve stock attractiveness and investor confidence, potentially driving earnings per share (EPS) growth.

OMV Petrom Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OMV Petrom's revenue will decrease by 0.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 14.9% in 3 years time.
• Analysts expect earnings to reach RON 5.0 billion (and earnings per share of RON 0.06) by about April 2028, up from RON 4.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting RON6.7 billion in earnings, and the most bearish expecting RON3.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 10.6x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 12.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.64%, as per the Simply Wall St company report.

OMV Petrom Future Earnings Per Share Growth

Risks

• The impact of regulatory and taxation changes, such as the newly introduced 1% construction asset tax and ongoing discussions about the extension of regulated gas and power frameworks, could lead to increased operational costs and reduce net margins in the coming years.
  
• The clean operating result for OMV Petrom's exploration and production segment decreased by 41% year-on-year, primarily due to lower oil prices, sales volumes, and higher depreciation and gas taxation, which could negatively affect future earnings.
  
• Plans for substantial capital expenditures, including RON 8 billion annually in 2025 and beyond, coupled with expectations of negative free cash flow before dividends due to increased investments, may pressure liquidity and financial flexibility.
  
• The Romanian macroeconomic environment shows softening growth expectations and high budget deficits, which have led to a negative outlook from rating agencies, potentially affecting future revenues and investment capacity.
  
• The regulatory environment in Romania, with ongoing discussions for extending regulated frameworks and market interventions, adds uncertainty and could impact operational performance and revenue stability, particularly in the gas and power segments.

Valuation

• The analysts have a consensus price target of RON0.799 for OMV Petrom based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be RON33.8 billion, earnings will come to RON5.0 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 12.6%.
• Given the current share price of RON0.71, the analyst price target of RON0.8 is 10.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.