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Kleiner Auszug einer Anylyse der BRE Bank (Polen):



Adverse external factors
PKN Orlen's weak first-quarter results were mainly affected by external factors. The Ural/Brent differential fell by 29% YoY to
US $3.59/bbl, slashing the company's profit by PLN 138m, though it should be noted that the differential is still above PKN
Orlen's estimates for this year (at US $3.5 /bbl). The refining margin was limp, at a mere US $2.56 /bbl (-28% YoY), which was
much below this year's expected average of US $5.33 /bbl. At the same time, Brent crude remained above the benchmark,
affecting both product-related expenses, and production costs (higher costs of refinery fuel, especially as the harsh winter
drove its use much above last year's level; we estimate that consumption by PKN Orlen increased by 26% YoY).
The prices of refined products were relatively steady compared to Q1 2005, with PLN gasoline prices rising 2.5%, and diesel
and heating oil prices ticking down by 1.6% and 1.1% respectively. Unfortunately, crude oil prices grew much faster, affecting
the financial results. The first quarter also saw rising crack spreads for all refined products except for diesel, which was not
good for business considering that diesel oil enjoys the highest demand (up 21% YoY in Q1 2006), while fuel consumption is
on the decline (down 2.4% YoY in Q1 2006).
The petrochemical market was also not favourable for PKN Orlen, with margins falling both on ethylene (down 20%), and propylene
(down 10%), partly due to disadvantageous EUR/USD exchange rates. The downtrend was reversed in April, which
was mainly visible in the slowdown in crude oil prices, and consequently also naphtha. We think that, if materials prices continue
to consolidate, or even slightly decline, the ethylene/naphtha and propylene/naphtha spreads should increase.
Weak refining business
The results posted by the refining segment, including wholesale sales, missed our expectations by the widest margin. PKN
Orlen suffered considerable losses due to bad weather conditions which affected production and demand, and accelerated
costs. The total impact of the weather factors on the segment's profit was PLN 230 million. Moreover, as mentioned before, the
company also lost PLN 138 million due to the lower Ural/Brent differential. A further PLN 96m-expense was an effect of inventory
revaluation in Poland, plus PLN 56m in the Czech Republic. Lower demand prompted the company to reshape its sales
structure by increasing the share of low-added-value products, leading to a decline in margins. The negative factors were
cushioned to some extent by better product prices (+PLN 50m) and good USD/PLN exchange rates (PLN +37m).





Waiting for dividends
The dividend wait is one factor which should have a positive impact on PKN Orlen's stock performance. The company's Management
proposed payout at PLN 4.5 per share, representing 50% of the 2005 free cash flow. But the dividends will be conditioned
on the outcomes of the Mazeikiu tender. If it wins, the company wants to retain the full profit so as to finance the acquisition.
The problem is, that the tender will probably still not be resolved in June, when PKN Orlen scheduled its General Assembly
to decide on the 2005 profit distribution. There are two possible scenarios: either the GA will approve a conditional
payout, or, the payout will (or will not) be authorised after Lithuania finally picks an investor for its refinery, or, if PKN Orlen is
selected as the successful bidder after the GA, the dividends will be considered an advance payment toward 2006. We think
that the State Treasury will push for a payout, and it is very likely to receive support in that matter from the financial investors.
PLN 4.5 per share implies a very high dividend yield (ca. 7%), especially compared to other sector companies in the region
which set their dividend yields at 1%-2%.img


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