PGNiG held conference call on its 1Q06 results. The main topics discussed were the following:
Similar to the previous quarter, upstream contribution to the overall EBIT was rising. In 1Q06 the segment's operating profit amounted PLN 242m mostly reflecting general increase in crude oil prices. The production volumes of natural gas remained broadly unchanged, but the production of crude oil rose by 5% y/y.
Unusually cold winter, which pushed up gas volumes sold, as well as the 12% increase in retail price of natural gas helped the utility segment to stay in green. Operating result of the segment amounted to PLN 333m which represents 86% y/y growth and delivers a better picture then the negative performance in the last quarter. The results also showed that the gap between retail and import prices of natural gas started to narrow (import prices are still higher than retail tariffs) , which is definitely positive sign for the market.
The high crude oil price environment observed in April and May 2006, the 8% tariff increase and the steady production volumes together are expected to compensate for lower gas volumes sold in 2Q06 and indicates a fairly positive earnings outlook in the short run.
Based on the management’s comments we are looking at revising our earnings estimates upwards. At the moment, we have a Hold recommendation on the stock with a target price of PLN 3.61 per share.