The premises are there for Romgaz shares to appreciate by 20% to 63% in the future, from the minimum price in the listing offering, of RON24/share.
The arguments that analysts give in favor of this price increase are the liberalization of the gas price, the high dividend yield, as well as the solid position of Romgaz Medias, which has profit margins of around 30%, cash reserves of EUR550 million and no debts.
As for the risks, analysts believe the major ones are for the company’s royalties to increase, the risk of a consumption decline amid a price increase. Other risks are the political risk and the rather high level of non-collected debts from other state-run companies.
The Romgaz offering will end on October 31. Monday, October 28, is the last day when retail investors will benefit from the 5% discount offered to them.
“Our evaluation puts Romgaz at an accurate value of RON12.9 billion, which means a growth potential of 40% on the minimum offering price and of 5% on the maximum price. The company has solid fundamentals and high growth prospects both in terms of profit and of turnover. Moreover, the company’s ability to generate cash is impressive, with Romgaz managing to pay 85% of its profit as dividends, while at the same time fully covering its investment needs from its own resources, without becoming indebted,” says Raluca Negoescu, analyst at Alpha Bank.
She says the analysis considered an increase in the company’s royalties from 7% in 2012 to 25%, under the worst-case scenario.
Negoescu also says gas prices in Romania are much lower than the European average, and according to the liberalization schedule, gas prices should rise more than two-fold by 2017, which will also significantly boost Romgaz’s turnover and profit.
The Romanian gas market liberalization is ongoing and will end in 2014 for industrial consumers and in 2018 for household consumers.
Daniela Mandru, analyst at Swiss Capital brokerage, says shale gas will not be a threat for the company for at least a decade, even though in the US gas prices have fallen significantly due to the exploitation of shale gas.
“Europe is against shale gas and even European leaders will change their opinion in the future, I don’t think this exploitation will be done in the next decade. From this perspective I don’t see any danger for Romgaz and for Petrom. I think Romgaz shares have a 30% growth potential, including any delay to gas price liberalization and even in the worst-case scenario royalties will rise from 7% at present to 25%. But I don’t think gas royalties will exceed the 25% mark because Petrom would be similarly affected by the too high royalty level and would not accept this easily,” Mandru says.
The Swiss Capital analyst says Romgaz has an ambitious target in terms of investments in exploration of gas deposits, of between RON500 million and RON800 million after last year it spent around RON128 million for exploration and RON278 million in 2011.
“I think the stock exchange listing will prompt the Romgaz management to be more responsible in terms of its expenditures. But as non-transparent as it has been so far, Romgaz is one of the most profitable companies in Central and Eastern Europe, not just in its sector of activity,” Mandru says.
(English version by Daniela Stoican)