Lower Refining Margins Hurts EBIT for OMV

Lower Refining Margins Hurts EBIT for OMV

OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV) released its financial results for 2Q 2013 this morning and revealed that the EPS for OMV stood at 0.981, slightly below the consensus estimates of 0.9825. Overall company revenues grew at a reasonable pace but the EBIT was unable to keep up with the growth amidst declining refining margins and gas and power issues. As a result, clean CCS EBIT declined by 15.3% YoY.

Lower Refining Margins Hurts EBIT for OMV

Table 1: Financial Summary of OMV for Q2 2013

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financial summary

The company’s strategy to strengthen its hold in the upstream sector resulted in strong numbers for the E&P business segment. OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV) booked EBIT of EUR 597 million (-3.86% YoY) for the second quarter of 2013. This was 1.32% below consensus estimates of EUR 605 million for the same period.

OMV growing Romania and enlarging in Norway

Gerhard Roiss, CEO of OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV) stated that the company had managed to achieve the highest year-on-year production growth in Romania since the acquisition of Petrom and enlarged its exploration portfolio in Norway where they now have a total of 23 offshore licenses. They also expanded in Abu Dhabi where they signed a further upstream agreement with partner ADNOC.

The company had total crude oil production of 14.4 million barrels (mmbbl) in 2Q FY13 as against 14.7 mmbbl the prevous quarter and 14.9 mmbbl same period last year. Natural gas production stood at 70.4 billion cubic feet (bcf) which was a 2% decline YoY. It is said that production decreased mainly due to the missing production from UK. The aggressive E&P activities of the company meant that E&P expenditure for the firm more than doubled in the second quarter.

OMV was able to maximize the benefits from hedging on its E&P activities. ‘The Brent price in USD was 5% below the Q2 2012 level, while the Group’s average realized crude price was only 2% down compared to Q2 2012. This reflects a negative hedging result of EUR 32 mn in Q2 2012, while no strategic oil price hedges have been entered into for the year 2013. The OMV Group’s average realized gas price in EUR was 8% above the level of Q2 2012,’ stated OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV).

OMV lowers refining costs while pumping up volume

In the gas and power business segment, total gas sales volumes decreased by 5% versus Q2 2012 from 89.45 TWh to 85.02 TWh predominantly due to lower wholesale volumes in EconGas and less trading activity. EconGas was severely burdened by oil-linked gas supply. However, the company still displayed stable performance of the gas logistics business by producing EBIT of EUR -25 million which was 350% below consensus estimates of EUR 10 million. The business unit power reported a total net electrical output of 0.23 TWh in Q2/13, mainly from the gas-fired power plant in Brazi (Romania). The lower electricity prices also resulted in lower EBIT for the overall G&P sector.

The refining and marketing segment has suffered the most cutbacks from OMV AG (ADR) (OTCMKTS:OMVKY) (ETR:OMV) (FRA:OMV). The R&M EBIT stood at EUR 90 million, 32% below consensus estimates of EUR 133 million but 291% above the same period last year. However, the refinery utilization rate stood at 94% and there were improved results from refining East due to lower costs and higher volumes. According to Roiss, ‘the sale of OMV’s lubricants business, together with the country exits in Bosnia-Herzegovina and Croatia reflects the company’s strategy to grow its hold in the upstream sector globally.’

After the results, OMV’s P/E ratio stands at 6.6827x. Analysts maintain a positive for OMV given the focused strategy of the Austrian group. Market sentiment is also positive and the Q3 EPS estimate stands at 1.07 while the estimated P/E for December 2013 is 7.88x.

Figure 1: OMV’s Historical Stock Price and EPS (2008-2013)

Source: Bloomberg
Source: Bloomberg

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Hira is a financial analyst whose expertise lies in commodity and other financial markets. Hira is currently an independent financial consultant and is working with many international firms like American Arab Solutions (AAS). She has previously served as a Senior Research Analyst at Alternate Research (Pvt.) Ltd. as the Team Leader for the International Equities Research. She has also worked as an equities analyst of Pakistani E&P stocks at Invest Capital Markets. She has experience in business development and conducting feasibility studies in commodity markets, specifically in sugar, palm oil and canola oilseeds. She has cleared all three levels of her CFA (Chartered Financial Analyst) and has an undergraduate degree in Finance.
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