Local producers have further marked falls in revenues and profitability, failing to capitalize on the opportunities in international markets, where oil and gas were among the commodities with price comebacks in the second quarter, after the lows reached in February.
Thus, the financial results for the second quarter disappointed investors, shares of OMV Petrom, the largest listed company in Romania, recording a decrease of 3.6% the next day after reporting, while Romgaz titles remained at the lowest level reached from listing until now. In addition, there are serious questions about the chances for the share price of OMV Petrom’s to increase significantly, especially sustainable, from current quotations, while for Romgaz chances there are minimal chances for a strong uptrend in stock price, although speculative temporarily increases are not excluded.
The reaction of investors was determined by the fact they were anticipating a positive effect of a recovery in oil prices to OMV Petrom results in the second quarter, while they have continued to deteriorate, although the company continued its cost reduction program. The prospects for the coming quarters are not too optimistic either, given that it is expected that potential for sustainable growth in oil prices to be limited by persistent pressures from both the demand and the offer.
Gas producer Romgaz continued downward trend in revenue and profitability after highs recorded in 2014. Natural gas production decreased by 6% in the first half because of early hot weather and lower demand from industrial customers. This associated with the low level of prices reached in early 2016. Although the company failed to benefit from the recovery in prices in the second quarter, it maintained almost unchanged profit margins and it has reached the budgeted targets for the first semester.
Electricity producers are also affected by lower prices, so that a a single digit decrease in production makes the difference between profit and loss. Nuclearelectrica, the only local nuclear power producer, reported a 6% decrease in energy production due to the shutdown of one nuclear power plant unit for a period twice as long as the usual. The company was forced to sell a greater amount of production on the short-term energy market, where prices fell by 7%, so it recorded its first operating loss after listing. In an optimistic scenario, even if Nuclearelectrica sees return to profit on an annual basis, it will be at 2011-2012 levels, with negligible dividend, which makes it difficult for the share price to rebound in the second half.
As about utility companies, half year results mainly reflect tightening in the regulatory framework, given that the Regulatory Authority for Energy (ANRE) has started to penalize not reaching th investment targets by cutting tarriffs. In the first semester, increases in revenue or profit were obtained only by companies that offset lower tarriffs by increased volumes, as was the case with Electrica.
Despite weaker fundamental data, however, aggressive corrections are not expected for the shares of the utility companies. Most likely, they will remain amongst the best paying dividends for one more year, as the law obliges them to distribute at least half of the profits, and investors can keep them in the portfolio at least for their defensive nature.
About Tradeville
Tradeville is the market leader in online trading, being the first company in Romania that has developed an online trading platform, which allowed it to be the only intermediary that, in the past decade, remained in the top ten of the retail intermediaries at the Bucharest Stock Exchange (BVB) and in the first two positions among brokerage houses, by turnover.