MOL’s board of directors has recommended paying out a dividend of HUF 46bn from 2012 earnings, which equates to a DPS of around HUF 460 (assuming 99.6m shares). MOL’s AGM will be held on 25 April 2013.
The proposal is likely to come as a negative surprise as the Bloomberg consensus forecast for MOL’s dividend stood at HUF 718 per share. Although we were below the consensus, the proposal also fell short of our projection of HUF 668 per share. The proposed DPS of HUF 460 translates into a dividend yield of 2.8% (based on yesterday’s closing price) which does not look stellar either compared to the average of CEE oils of 3.5% or to the one-year Hungarian government bond yield of 4.4%. Despite this, the market reaction may remain muted in today’s trading as investors are likely to have predicted a more modest dividend proposal after the disappointing clean earnings for full-year 2012. Indeed, after the conference call on 2012 results, we also noted that our DPS forecast was at severe risk. The proposed dividend implies a payout ratio of 25%, which, together with last year’s 20% payout ratio, raises some credibility/sustainability concerns about the company’s stated dividend policy of paying out 40% of clean net earnings. Given MOL’s poor nearterm production growth outlook, the expected normalization in refining margins as well as the political headwinds in Hungary and Croatia, the firm's dividend payout ratio may normalize at 20-25% rather than the stated 40% in the years ahead.