Poland’s Strong Consumption and Investment Point to Robust Growth with Mild Inflation Outlook
Ukraine Peace Deal Hopes Weigh on EUR Inflation Swaps as Real Rates Hit New Highs
Germany’s Economy: Three Years of Stagnation With Only Limited Signs of Recovery
Commodities Move on Geopolitics and Weather as Oil Rises, Gas Falls, and Nickel Faces Supply Risks
USD Overvaluation Persists as Geopolitics Dominate and JPY Faces Intervention Risks
This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program. 3.0. This is an excerpt from the Polish version of DM BOÅš SA’s research report.
Sector: Oil & gas
Market Cap: US$ 151.2 m
Fundamental rating: Buy (→)
Bloomberg code: UNT
PW Market relative: Overweight (→)
Av. daily turnover: US$ 0.26 m
Price: PLN 87.60
12M range: 35.45-87.60 PLN
12M EFV: PLN 115.0 (↑)
Free float: 36%
Unimot’s equities stay among our preferred stocks (Buy + Overweight; 12M EFV = PLN 115 per share) and once again we upgrade our financial forecasts for the Company: we (i) incorporate materially higher than we expected 3Q22 financial results, (ii) assume significantly higher 4Q22 results, (iii) include consolidated logistic assets (Olavion + cisterns) being acquired by the Company, and (iv) raise forecasts for the following years. We continue to be positive about the planned acquisition of asphalt and logistic assets from Lotos and PKN Orlen (which may be finalized already in December) and still believe this can be a breakthrough moment for Unimot that may become one of the biggest beneficiaries of Poland’s naphtha sector consolidation. We uphold our view expressed earlier that a share issue will not be necessary for funding these acquisitions, the more so that (i) the Company’s current financial results are record high, (ii) a strong decline of inventories was confirmed in 3Q22 results, and (iii) a high level of commercial receivables is likely to normalize in the upcoming quarters.
We are positive about inland fuel premium margins in 2023, albeit in our forecasts we assume their normalization. The war in Ukraine, imposition of numerous sanctions on Russia and Belarus, and self-sanctioning led to a real shortage of particular fuels on European markets, and Poland was not immune to this. Lower supply, lower fuel stock, and more costly alternative imports directions: all this is reflected in higher fuel premiums. There is another important factor that supports margins, namely logistic problems in the region; currently the rail infrastructure is utilized to the limits which plays a significant role in the market creation. In these circumstances the lack of own logistics may indicate a failure to carry out the transportation operations (in Unimot’s case, this risk fully justifies the Company’s decision to purchase Olavion and cisterns). It is worth mentioning that high cost inflation affects fuel imports to Poland (via higher costs of logistics, storage, transport, freight, external services, and salaries) which may act as a strong growth driver for fuel premiums. Given the above mentioned considerations, consolidated FY22E EBITDA for the ON/bio segment stands a chance to exceed the record high level of PLN 325 million. Then, what is the outlook for the quarters to come? Due to a low visibility and unpredictability of the commodities markets we assume that fuel margins will gradually normalize in 2023 and 2024 (which implies that the expected EBITDA of the ON/bio segment will fall to c. PLN 250 million next year, and then to PLN 130 million in 2024), albeit given the current circumstances this approach may be considered a very cautious one, the more so that 4Q22 witnesses a further strengthening of fuel premiums. It seems that the above mentioned factors will prevail in the nearest quarters which could help maintain (or even improve) the current macroeconomic situation. It is worth mentioning that an acquisition of new cisterns and Olavion may prove crucial in securing the Company’s competitive edge over other independent fuel suppliers. After the incorporation of Unimot’s new assets and rationalization of longterm assumptions (for margins and sales volume) our normalized mid-cycle EBITDA for the ON/ bio segment rises to PLN 130 million (from PLN 100 million expected earlier).
We assume a cautious approach to the LPG segment as well. This segment, alongside the ON/ bio one, is the main beneficiary of turbulent market changes, limited fuel supply in Europe, and logistic problems in the region. The fact that this year’s EBITDA of the LPG segment is likely to exceed the level of last year’s total EBITDA, truly surprises us. Similarly as with diesel and petrol, we remain cautious and assume significantly lower EBITDA in the following years than expected for this year, although at the moment we believe it is likely that our projections would be beaten. We raise our LT estimate of normalized EBITDA for this segment to c. PLN 20 million (from PLN 15 million expected earlier)
The outlook for 2023 for the remaining segments is blurry due to limited visibility and high volatility on the commodities market. It is really difficult to forecast the Company’s margins for next year in other business segments due to an exceptional situation on most commodities markets and continuing geopolitical uncertainty. This refers especially to the gas and electricity segments. The law freezing electricity prices is still another risk factor with an impact difficult to assess. In our f inancial forecasts for the Company we expect much weaker results in these two segments next year, but this is more related to our cautiousness than stemming from a pessimistic approach. Anyway, the fact is that in previous quarters, in spite of the unpredictable environment, Unimot managed to surprise with relatively good financial results
1. Logistic challenges and full utilization of transport infrastructure in Poland will support fuel margins.
2. No need to conduct an SPO to acquire assets.
3. High yoy increases in revenues recognized in the coming months.
4. Diesel consumption in Poland rises in 2023.
5. Unplanned refinery production stoppages support inland premium margins.
6. The photovoltaic and retail segments will grow at a faster pace than expected.
7. The fuel sector consolidation will bring about a lasting increase of fuel inland premiums in Poland.
8. Weaker market competitiveness results in a lasting growth of fuel inland premiums.
9. Crude oil price drops will lower NWC requirements.
10. The Group’s reshuffle should lower the Company’s NWC by over PLN 200 million per year.
11. The Company will recognize PLN 30 million of savings in 2H22 thanks to the Group’s reshuffle.
1. As the biggest independent fuel supplier in Poland the Company is currently seen as the alternative for PKN Orlen.
2. Motivated and competent management team holding the equity position in the Company.
3. A big scale of business in the wholesale diesel trading market that may be difficult to reach for newcomers.
4. Tight cooperation with PKN Orlen: Unimot is a big wholesale buyer of PKN’s diesel oil and one of the main suppliers of biocomponents to PKN.
5. Expanding retail fuel chain secures growing wholesale diesel volumes.
6. A high cost effectiveness in comparison to competition.
7. Strengthening of the Company’s competitive edges and adding elements of stabilization and diversification thanks to an acquisition of logistic and asphalt assets from Lotos.
8. Unimot may be among the main beneficiaries of Poland’s fuel sector consolidation
Analyst: Åukasz Prokopiuk, CFA
GPW’s Analytical Coverage Support Programme 3.0
