Prime Transaction estimates an intrinsic value of 19.8 lei for the Transgaz share

Brokerage Prime Transaction's analysis team estimates an intrinsic value of 19.8054 lei for Transgaz (TGN) shares, slightly ahead of the natural gas carrier's share price as of Friday's mid-session trading session, and above its previous estimate, as it turns out from the attached report.

In the previous report, which was published in June of last year, Prime estimated an intrinsic value of 17.5817 lei for the natural gas carrier's titles, which in the meantime has been reached and surpassed by the price. On Friday, at 2:30 p.m., Transgaz shares traded at 19.24 lei, according to the data displayed by the Bucharest Stock Exchange (BVB).

"The published financial results for the second quarter and the third quarter were weak, but this was to be expected. The rate increase for the fourth quarter will normally bring an increase in profit compared to TTM (of the last four quarters), at nine months," the Prime report said.

The volumetric tariff approved by ANRE for the period October 1, 2023 - September 30, 2024 increased by 46.85%, from 1.11 lei/MWh transported to 1.63 lei/MWh.

"It seems like a spectacular increase, but we have to take into account the fact that the volumetric part ended up occupying a rather small weight in the total tariff. Capacity reservation rates have undergone changes in terms of period structure, with increases for rates for the periods October-December and July-September, and decreases for those for the periods January-March and April-June. The average reservation rates for all four quarters remained the same, 1.3 lei/MWh/h", the report states.

According to the document, Transgaz has never had a high return on equity (ROE), being dragged down by high equity needs and low asset turnover even when the profit margin was high.

"After the last financial reports, however, it reached a minimum of the last few years, slightly below 3%, the net margin being, in turn, much below the level of other periods. The increase in the equity multiplier gives hope for the future, as a return to net margin could result in more consistent ROE growth compared to previous years," according to the report.

To value the Transgaz share, the Prime Transaction team uses a combination of the market multiples method, to which it gives a 25% weight, and the future cash flow method with a 75% weight.

Using the market multiples method, Prime reached a value of Transgaz securities of 22.6612 lei, among the comparable companies included in the analysis being Fluxys from Belgium, Amber Grid from Lithuania and Enagas from Spain. Through the method of discounting future cash flows (DCF), the analysis team estimated an intrinsic value of 18.8535 lei/share. Thus, the weighted average value (with 75% weighting for the evaluation by the DCF method and 25% for the one based on market multiples) is 19.8054 lei per title, according to the report.

Prime believes that, for last year, Transgaz will report total revenues of 1.72 billion lei, which will rise to 2.05 billion this year and 2.48 billion the following year. For the net profit, the amount of 148.8 million lei was taken into account in the case of last year, respectively 191.7 million lei this year and 447.7 million lei in 2025.

"We draw attention to the fact that this is not an actual estimate of the financial results, but a scenario that we consider plausible for the future," the document states.

The Prime Transaction Report is not an investment recommendation. The estimated value is not a target price that analysts expect the issuer's stock to reach, but only an intrinsic value, dependent on the confirmation of the assumptions detailed in the report. The report represents general information and is not a substitute for investment consulting services, the document states.