Raiffeisen Research: "Hold" Recommendation on Petrom Shares

Raiffeisen Research maintains its "hold" recommendation for Petrom, confirming the target price of RON 0.510 per share. Petrom"s second quarter results were above analysts" expectations, due to positive results in Exploration and Production, as well as Refining and Marketing.

On a yoy comparison EBIT decreased by 23% to 548 million RON due to a strong appreciation of the USD vs. the RON, a lower crude production (down by 3% to 192,000 boepd) and a 6-week turnaround at Arpechim (in combination with lower marketing sales).

Raiffeisen analysts believe that the liberalisation of the Romanian gas market still offers upside potential to Petrom"s results. Furthermore, the modernisation of the Petrobrazi refinery could add to the company"s profitability once the programme is completed. Although the long-term earnings improvement story at Petrom is still alive, the company will be facing high investment costs in the course of the next years, which have a negative impact on the time value of money. Therefore, Raiffeisen Research maintains its "hold" recommendation for Petrom shares and does not change it to "buy".

Nonetheless, Raiffeisen Reasearch encourages investors to buy shares in OMV, Petrom"s majority shareholder. "OMV"s development in the second quarter of 2007 was above our and consensus expectations, although its results are partly below those of last year"s 2Q." Therefore, Raiffeisen analysts upgrade the share from "hold" to "buy". Given a more cautious long term outlook due to a more unfavourable FX development, they also reduce their target price from 52.50 EUR to 49.00 EUR. The unsuccessful attempt to incorporate MOL negatively affected the share price.

In the second quarter, OMV"s net profit rose by 5% yoy to 435 million EUR, surpassing the 410.4 million EUR estimate, thanks to strong results of affiliates Borealis and Petrol Ofisi. OMV has a whole portfolio of projects running (acquisition of MOL, Nabucco gas-pipeline, refining in Turkey, turnaround of Petrom) that promises further growth and expansion in all business segments. However, the accomplishment of these projects is not secured. Nevertheless, the overall long-term growth perspective of OMV looks promising.