PGNiG is due to report 4Q05 results on 1 March (Wednesday). We expect a significant EBIT recovery from 3Q05, due to the 9% average tariff increase in September. Our 4Q05 net profit forecast of PLN 273.1m is a mere 1.6% above the consensus estimate (PLN 268.7m, reported by PPA). The company will hold a conference call for analysts on March, 1, 16:30 CET (15:30 GMT). Dial in numbers are +44 (0) 207 162 0125 for the UK and +1 334 323 6203 for the US.
Based on the 7.6% average price increase valid from October we originally expected that PGNIG could potentially achieve PLN 4.15bn sales in 4Q05, assuming typical weather. However, management has indicated that the temperature in October and November was well above seasonal average, so we should not expect record sales volume for 4Q05. Thus we slightly amended our sales forecast to PLN 3.82bn, still 3.7% above market consensus of 3.68bn.
According to our calculation, PGNiG produced some 160kt crude oil in the quarter and sold it for PLN 200m. Crude oil production business delivered some PLN 130m on the EBIT line, almost 60% of total EBIT of the group, which raises significant questions about the profitability of other business lines.
As our EBIT forecast of PLN 218m practically matches the consensus estimate while our net result estimate is only a mere 1.6% above the consensus, we do not think that figures will result in a significant market reaction. Moreover, investors are still very cautious in the lack of new top management and seeing unclear political intentions of the Polish government regarding PGNiG.
We keep our hold recommendation on the stock with our target price of PLN 3.58.