STOCKWATCH - RCI Keeps ‘Hold’ Recommendation on Romania’s Transgaz, Lifts Target Price

"The changes to our forecasts had a minor effect on the 12-month target price (TP) determined using the dividend discount model (DDM). The TP stands at 168.6 lei ($58.1/39.5 euro) from 167.3 lei previously, offering an upside of 5% on the closing price of Sept 17, and continuing to support our “hold” recommendation," RCI said in the statement. 

Transgaz stock closed up 0.38% up at 160.6 lei on the Bucharest Stock Exchange on Friday.

The company’s management has said it started the implementation of the measurement and control system SCADA which is due to be finalised in the next two years.

“The project’s execution seems to require more funds than previously estimated and thus we raised the CAPEX level in 2010 and 2011 with around RON 20 pa [per annum]. We believe that the automated system allows a decrease in maintenance expenses estimates in 2013 and onwards,” RCI said.

The management said that the company’s 2010 budget will include 76 million lei as participation in the Nabucco gas pipeline project.

“We do not believe that Transgaz participation in Nabucco will exceed 20 million in 2009 (already accounted for) and in 2010 we assume that the participation will be around 60 million lei,” RCI said.

RCI added that it revised its estimates for the quantities to be transported in 2009 to a 16% drop to 121.3 Terawatt hours, compared to the previously projected fall of 20% as Transgaz management had said the quantities transported in July and August were in line with the those in the year-ago period.

Majority state-owned Transgaz reported last month an 18.4% annual rise in its first-half profit to 170.1 million lei. First-half turnover went up by 8.0% on the year to 586.7 million lei.

(1 euro = 4.2632 Romanian lei)