PGNiG to maintain payout ratio, claims for further tariff increase

PGNiG aims to maintain current dividend payout ratio of 78.2% also for 2006, CEO told the press yesterday. This comes as a surprise to us and we feel as contradicting to the ambitions CAPEX plans of the company, described in the IPO prospectus. As we did not count with the dividends payout for this year, we would likely adjust our projections after speaking to the management regarding their investment plans. The company also filed its proposal on the further tariff increase to Polish gas market regulator URE. We welcome this, as soaring energy prices in 2Q06 are expected to put a downward pressure on margins at PGNiG’s utility segment in the second half of the year, due to the lag in the pricing formula of natural gas imports. If negotiations are successful, we expect the new tariffs to support the company’s results in 3Q and 4Q, and thus it might indicate earnings upgrades. We maintain our “Hold” recommendation with a fair value estimate of PLN 3.80.