STOCKWATCH - RCB Downgrades Croatia’s INA to "Reduce" from "Buy"

“Our new target price is 1,606 Croatian kuna (from 1,900 kuna) based on our DCF model (1,602 kuna with 75% weight) and peer group analysis (1,617 kuna with 25%). Therefore we change our recommendation to “reduce” from “buy”,” RCB said in a statement.

“INA’s share price has picked up 18% since we put it on “buy” but now we see the time to switch back to a more cautious stance,” RCB said.

RCB added it has not changed its general view on major trends that it expects with regard to INA’s continuing operations which may show a significant improvement in the coming years, boosted by the significantly increasing hydrocarbon production along with the convergence process of Croatian gas prices to import parity.

“Moreover, downstream EBIT could turn positive as well after the phase I of the refinery upgrade will be finished by mid-2010. However, we have a more pessimistic view on expected free cash-flow and its balance sheet, the bottleneck for INA,” it added.

“We have made moderate changes with regard to our continuing EBIT forecast for 2010 and 2011 but have to cut back our net profit forecast for 2009 from 770 million kuna [$157 million/105 million euro] to -214 million and our 2010 forecast by 17%,” RCB added.

INA explores and drills for oil and gas in Croatia, Angola, Egypt, Syria and Iran.

INA's shares were traded at 1,680 kuna on the Zagreb Stock Exchange by 1107 GMT on Friday, 0.19% down from its previous close.

(1 euro = 7.3197 Croatian kuna)