• Lotos – Buy (maintained): High downstream exposure and a high gasoline yield in production make Lotos a
very good play on rising gasoline spreads/refining margins. Trading on a 2007F P/E of 7.3x and 2007F
EV/DACF of 6.3x, Lotos looks exceptionally cheap when compared to its CEE peers. The stock is now the top
pick in our CEE oils coverage universe.
• PKN Orlen – Buy (maintained): The company scores well with its downstream-weighted earnings structure
and attractive valuation (2007F P/E of 7.0x and 2007F EV/DACF of 5.5x). Also, we believe the restructuring
story at Unipetrol and Mazeikiu could provide more steam in the near term. Our new fair value estimate
implies 25.2% upside.
• OMV – Hold (downgraded): We still like OMV for its integrated earnings structure and favourable risk profile.
However, following the impressive performance of OMV’s share price in March, upside to our fair value
estimate has been reduced to just 6.6%. We therefore cut our recommendation to Hold.
• Petrom – Hold (upgraded): With its declining production, inefficient refining segment, and high cost of
capital, Petrom still does not appear attractive. However, with share price down 5% last month, our target
price of RON 0.52 per share implies only 8.8% downside. We therefore upgrade our rating to Hold.
• Unipetrol – Hold (downgraded): Our earnings estimates for Unipetrol have been only moderately affected by
the changes in our crude macro scenario, due to the modest earnings contribution of refining. Since the stock
has jumped 8.6% since our last report (6 March 2007), upside to our new fair value estimate has been
reduced to 6.4%. We therefore cut our rating to Hold.
• MOL – Hold (maintained): Due to the company’s relatively low gasoline exposure, MOL’s valuation only
moderately benefits from our bullish stance on refining margins. We believe that the company has lost
earnings momentum and lacks a major restructuring story. With our new fair value estimate implying just 4.2%
upside, we reiterate our Hold recommendation.
• PGNiG – Hold (maintained): We expect PGNiG to profit from the planned market liberalization of the Polish
energy market in the future but we remain cautious, due to the company’s valuation (2007F P/E of 14.7x and
2007F EV/DACF of 6.7x) and high political risk. Our fair value estimate implies 2.6% downside and we
maintain our Hold rating.
• Rompetrol – Hold (maintained): Downstream-weighted Rompetrol also benefits from rising gasoline cracks.
Increased refining margin forecasts have pushed up our earnings estimates and lifted our fair value estimate
by 4.4% to RON 0.094 per share. Even so, this implies 7.8% downside for the stock. Hold.
• INA – Sell (maintained): We acknowledge the better-than-average earnings growth prospects of INA in the
medium-term but this does not justify the company’s huge premium to its CEE peers of 110.3% on a 2007F
P/E of 25.8x and 91.1% on a 2007F EV/DACF of 17.1x. Sell.
