Petrom 2Q 2010 results

While we were to optimistic regarding the net profit, consensus was outperformed. The bottom line came in at RON 718 mn (9% better than consensus, but 14% worse than our forecast. In the segments, the EBIT of E&P was in line with (RON 887 mn), R&M CCS was the big positive surprise at RON 78 mn (we expected RON 16 mn, the main difference being much better CCS effects), and G&P was the big underperformer at RON -47 mn (we expected RON 38 mn, the loss comes from an unexpected rise of bad debt provisions at Petrom Gas SRL). Corporate and others was also worse than we had expected at RON -43 mn (our prognosis RON – 18 mn). The financial result profited less than we expected from the stronger USD compared to RON, due to higher interest costs. The effective tax rate was as expected at 16%. Net debt stands at RON 2,697 mn, gearing is 15%, 2Q 10 OCF was RON 1,289 mn, up almost 40% qoq and more than tripe the 2Q 09 value.

Although we expected a better bottom line, Petrom shows that its R&M department is back in the black, and the unexpectedly high G&P loss looks like a one-time mishap (more details later). Also looking at the cash generation, we must say that the management's efforts to concentrate on profitability are bearing first fruits. We therefore expect a positive market reaction.