PGNiG published its 4Q12 results this morning with EBITDA (PLN 3.2bn) and net profit (PLN 2.2bn) falling 12% and 10% short of the market consensus (collected by PAP). Surprisingly and contrary to previous quarters, the main culprit was in the E&P segment where reported figures were tormented by PLN 387m one-off impairment charges on extraction assets. However, stripping off this item, EBITDA at PLN 3.6bn came bang in-line with the consensus. Admittedly, the clean underlying earnings surprised us on the upside as we were less optimistic than the consensus.
However, majority of this beat is related to the higher-than-forecast (PLN 3.0bn versus PLN 2.75bn expected) one-off gain related to the contract negotiations with Gazprom. In terms of clean segmental performance, E&P was extremely strong while loss on trading continued to be a massive drag on the company’s earnings. The Heat & Power segment once again disappointed over the period but this was essentially neutralized by better-than-forecast contribution from the distribution segment. While the headline numbers may unnerve some investors, we see PGNiG’s 4Q12 numbers as qualitatively strong. In short, we expect a rather muted market reaction to today’s figures. On 2013F EV/EBITDA of 6.6x, PGNiG currently trades at a slight discount to the historical average. However, with risks looming over the hydrocarbon taxation the widening of the valuation gap seems likely. Also, comparatively there appear to be better value propositions elsewhere in our coverage.
Cashflow/balance sheet: Albeit mostly driven by the positive impact of contract renegotiations, operating activities generated a massive net cash inflow of PLN 3.4bn, the strongest in history. No surprise that the key balance sheet metrics improved remarkably. Net debt fell back to PLN 8.3bn in 4Q12 from PLN 9.2bn in 3Q12, driving gearing to 30.3% in 4Q12 (versus 37.9% in 3Q12) and the one-year rolling net debt-to- EBITDA to 1.80x in the period (versus 4.37x in 3Q12). With the production from the Skarv and LMG fields arriving in 1Q13 and 2Q13, respectively, the key balance sheet metrics should further normalize.