Analysts Downgrade INA Shares to ‘Sell’

Analysts from Erste Group assess that shares in the oil and gas sector in Central and Eastern Europe are undervalued, and they have given or maintained a ‘buy’ recommendation for most of the shares of these companies, with the exception of INA shares, which they have downgraded to ‘sell’.

Despite higher-than-expected crude oil prices and the current poor sentiment and sales in global stock markets, Erste Group analysts estimate that the profitability of the oil and gas sector in Central and Eastern Europe is even higher than last year. In fact, despite expectations of a slight deterioration in the macro environment for these companies, namely a decrease in oil prices and refining margins, the current share prices of these companies are generally significantly below their values, as highlighted in the latest analysis by Erste Group.

These shares are currently trading at a price-to-earnings (P/E) ratio of 8.0 times (only 6.1 times if INA is excluded) in terms of this year’s earnings. The profit multiplier for these companies, based on estimated earnings for 2009, is 7.3 times, or 6.2 times if INA is excluded. The undervaluation of shares in this sector is also visible according to the EV/EBITDA criterion for the next two years, although these figures are somewhat ‘inflated’ due to the high ratios of Petrom and especially INA.

Erste analysts believe that shares in the oil and gas sector in this region are trading not only at P/E, EV/EBITDA, and EV/sales values below those of European peers but also below the long-term average, which ranges from 8 to 12 times for the profit multiplier. Analysts from Erste Group have downgraded the rating for INA shares to ‘sell’, considering that the current price of its shares is supported by MOL’s takeover offer at a price of 2,800 kuna, which is significantly above the target price they have set at 2,550 kuna.

However, as they emphasize in their analysis, potential synergies with MOL could reach 460 kuna per share, which would justify its current price level. For OMV shares, Erste analysts maintain a buy recommendation, taking into account its plans to increase production, and have set its target price at 55 euros. Although there is no potential for growth in the future, MOL is currently benefiting from high margins on diesel and has achieved a record quarterly result at the operational level. Therefore, Erste analysts are changing their previous recommendation for this share from ‘hold’ to ‘buy’, setting its target price at 22,500 Hungarian forints.

They recommend buying shares of Polish Lotos and PKN Orlen, setting their target prices at 33 and 45 Polish zlotys, respectively. They maintain a buy recommendation for Unipetrol shares, but with a significant reduction in the target price to 250 Czech crowns, due to the expected closure of the plant in Litvinov and a significant decline in margins in the petrochemical business. Petrom shares also received a buy recommendation, after a previous ‘accumulate’, but the target price has been lowered from the previous 0.608 to 0.570 Romanian lei. (H)