Orlen's stock prices are dropping. What's going on with the fuel giant?

Luc Williams

Financial results and stock market declines

Orlen's share prices on the WSE have seen significant declines this morning. At 1:45 p.m. Orlen shares were priced at PLN 66.79, which means a drop of over 8%.

Net profit of the Orlen Group for the first three months of this year amounted to PLN 2,785 million and was lower by PLN 6,686 million compared to the same period last year – the company announced on Wednesday in the consolidated quarterly report.

Why did the company's ratings drop?

– Orlen, like other State Treasury companies, it remains a laggard compared to the results of private business shares, listed on the Warsaw Stock Exchange. Weaker-than-expected quarterly results are, to some extent, justified disappointment and encourage investors who doubt long-term growth to take profits – comments Eryk Szmyd, XTB analyst.

As he adds, it seems that the weaker report also cleared the speculative bag of concerns surrounding the company itself, which has been in the spotlight in recent months following a PLN 1.6 billion write-off and ongoing investigations. At the same time, the retail business (now experiencing some slowdown), expansion outside Poland and potential benefits from higher refining and gas distribution margins may provide synergistic growth potential in the coming quarters. The decline in net margin and lower profit indicate the high cyclicality and range of results of Orlen's business, which after the takeover of PGNiG may be treated as risky. Given the high investment outlays necessary to implement the strategy plan until 2030, the company may incur higher costs in the following years, not necessarily compensated by higher margins and profits from the main business segments.

– Nevertheless, net profit, although weaker than expected, was solid and the recommended dividend will probably keep investors convinced that Orlen can still benefit from better sentiments around Polish assets and the expansion of the Polish economy. This does not change the fact that Orlen's 25% lower sales and 70% lower y/y net profit suggest that a theoretically attractive fundamental valuation may constitute a 'value trap', because the company's business model is highly susceptible to cyclical fluctuations in results, and in the following years the company will incur higher operating costs. The stock exchange currently does not give Orlen a chance to beat the record results of 2022. – emphasizes Szmyd.

President of Orlen: We are accelerating

In Wednesday's press release, the company emphasized that Orlen Group finished the first three months of this year with operating profit EBITDA LIFO at the level of PLN 8.4 billion. As noted, stable financial results were achieved with a simultaneous decrease in net debt by PLN 1 billion quarter to quarter.

Orlen reported that during this time the company allocated nearly PLN 6.4 billion for investments in all areas of its operations.

“We are accelerating. Energy transformation represents one of the greatest business opportunities in history. Orlen must use it. That's why we focus on the most promising projects and technologies. We put more emphasis on efficiency,” said Orlen's president, Ireneusz Fąfara, quoted in the company's press release.

As he emphasized, the goals declared in the Orlen Group's strategy until 2030 are consistent with the directions of market development, but their implementation is significantly delayed. “We need to catch up, and where this is not possible or business-wise, verify previous assumptions,” he noted.

Cooperation with Saudi Aramco

We will talk to Saudi Aramco about cooperation, among others regarding petrochemicals – Ireneusz Fąfara, president of Orlen, told PAP on Thursday.

Orlen's president, Ireneusz Fąfara, was asked whether the new management board of the company would want to change the rules of cooperation with Saudi Aramco, a company that owns 30 percent. shares in the Gdańsk Refinery.

“We initiated contact. We received a very nice response to our contact. We definitely want to come back to it and define the principles of cooperation in the future. When signing the contract (with Saudi Aramco – PAP), we also talked about future projects regarding both Gdańsk and petrochemistry, and also about this We will talk,” said Fąfara.

He noted that it is currently too early to provide any specifics regarding talks with Saudi Aramco.

On Thursday, Orlen's president announced that the management board will present the company's revised strategy by the end of 2024. The current one, adopted in early spring 2023, assumes a time horizon until 2030.


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