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With all the talk about the performance of the energy sector in 2022, driven by high oil, gas as well as electricity prices, we decided to bring you a brief analysis of how the Romanian blue-chip energy companies performed during this period.

With energy companies comprising almost a third (6 out of 20) of the BET index, their performance has a significant impact on the index itself. As 2022 was marked by significant increases in prices of oil, gas, and electricity across Europe, the energy sector companies, especially the ones that are directly connected to either the extraction, production, and refinement of natural gas and oil or the ones which produce energy from other sources (such as nuclear or renewables), due to the way that the electricity prices are calculated on the EU level, benefitted as well.

Due to the importance of the energy sector to the Romanian economy, the so-called “windfall tax” has been implemented for at least a couple of years. This tax refers to the companies in the energy sector in Romania having to pay extremely high tax rates (above 50%) on any extra profits higher than a certain amount. This amount is based on, for example, the current price of gas, oil, or electricity, and as such, is a fair way of limiting the extra profits of companies that are benefiting from high prices on the market, while at the same time, being able to use the collected funds to help companies that are more strongly affected by the surge in energy prices.

With the start of the war in Ukraine, the tax was transformed into the Solidarity contribution, according to which, after the profits exceed a certain amount for the energy companies, 100% of the extra will be taxed. This, besides the growing prices of energy, is the situation that the Romanian energy sector found itself in 2022. So, having this in mind, how did they perform?

Revenue of select Romanian energy companies (9M 2022 vs. 9M 2021, RONm)

Source: Companies’ data, InterCapital Research

Out of all the companies, the largest absolute increase by far was recorded by OMV Petrom, the largest oil&gas producer in Romania, which recorded growth of RON 27.2bn, or 159% YoY. Following them, we have Romgaz, with an increase of RON 7.3bn, or 209%, and Nuclearelectrica, which recorded growth of RON 2.7bn, or 124% YoY. Next up, we have Transelectrica, which recorded a revenue increase of RON 2.6bn, or 114%, and Electrica, which recorded growth of RON 2.2bn, or 44%.

Moving on to EBITDA and net profit, we decided to compare the margins rather than the absolute numbers as this will better show us if the companies benefiting from the strong growth in revenue, or if the growth in OPEX as well as the aforementioned windfall tax/Solidarity contribution reduced their margins and thus profitability.

EBITDA margins of select Romanian energy companies (9M 2022. vs. 9M 2021, %)

Source: Companies’ data, InterCapital Research

As we can see, the largest margin maintained in 2022 is by Nuclearelectrica, at 53.9%. However, this is an improvement of only 0.3 p.p. YoY. This case is also peculiar as compared to other energy production companies analyzed here, Nuclearelectrica produces it from nuclear energy, and as such was not affected by the growth in the commodity prices themselves. Even so, Nuclearelectrica recorded OPEX growth of 89% YoY, with a total amount of RON 2.7bn in 9M 2022. The tax on extra profits amounted to RON 872.9m, meaning that without it, the Company would record an OPEX growth of 28% YoY, which would mean that the EBITDA margin would amount to 71.7%, recording significant growth. Next up, we have Transgaz, with a margin of 38%, an increase of 3.9 p.p. YoY, and Transelectrica, with an EBITDA margin of 37.9%, an increase of 10.1 p.p. YoY. This is also the single highest increase out of all the companies. On the other hand, the largest decrease in margins was recorded by Romgaz, decreasing by 24.9 p.p. to 26.8%, mainly as a result of higher OPEX (+252% YoY), of which, the tax on additional revenue from the gas sales increased by RON 4.56bn (+12.5x).

Net profit margins of select Romanian energy companies (9M 2022 vs. 9M 2021, %)

Source: Companies’ data, InterCapital Research

Finally, looking at the net profit margins, the largest increase was recorded by Transgaz, with a 13.3 p.p. growth to 24.3%, followed by OMV Petrom, with a 10.9 p.p. increase to 20.7%, and Nuclearelectrica, with 10.2 p.p. increase to 39.5%. On the flip side, like with the EBITDA margin, the largest decrease was recorded by Romgaz, with a decline of 12.4 p.p. to 20.7%.

What this data can show us is that even despite the massive growth in revenue, EBITDA, and net profit recorded by most of these companies, the margins have, only slightly increased in the case of EBITDA, or recorded noteworthy growth in terms of profit margins. This is because the OPEX growth was also affected by the aforementioned extra profit tax, besides the increased costs of production and material, while for the net profit, the companies also recorded positive net financial results, due to higher interest incomes and lower interest expenses due to positive FX movements. Taken together, this would mean that the way that the extra profit tax was implemented reduced the extra profits which can now be used to help more heavily affected companies and households, while at the same time, leaving the companies’ margins either unaffected or even allowing them to grow (especially in the case of net profit margins).

At the end of November 2022, SBITOP grew by 4.4% MoM, ending it at 1,061.66 points.

The total equity turnover on the Ljubljana Stock Exchange amounted to EUR 47.5m, representing an increase of 47% YoY, and 83% MoM. This would also mean that the average daily turnover in November amounted to EUR 2.26m.

In terms of the block trades, two block transactions were made during the month, this being Krka at EUR 11.3m, and Petrol at EUR 9.79m. Excluding these transactions, total equity turnover amounted to EUR 26.4m. Out of this, the largest turnover was recorded by Krka, with a turnover of EUR 10.9m (or 41% of the total), followed by NLB, at EUR 6.6m (or 25% of the total), Cinkarna Celje, at EUR 2.89m (or 11% of the total), Petrol, at EUR 1.66m (or 6.3% of the total), and Triglav, at EUR 1.6m (or 6.1% of the total). In fact, this would mean that the top 5 most traded stocks accounted for 89.6% of the total turnover, while the top 10 would account for 99.6%.

In terms of the indices, Slovenia’s main index, SBITOP, increased by 4.4% and ended the month at 1,061.66 points. At the same time, SBITOP TR also grew by 4.4%, ending the month at 1,328.78 points. On a YTD basis, the SBITOP index declined by 14.5%.

Taking a look at the SBITOP constituents’ performance during the month, we can see that 9 out of 10 companies recorded growth during November. The largest increase was recorded by Cinkarna Celje, with a growth of 13%, followed by Sava Re, with 11.8%, NLB, with 10.1%, Luka Koper, with 9.28%, and Unior, with 8.7%. On the flip side, the only decrease was recorded by Petrol, which declined by 4.9%.

Performance of SBITOP constituents (November 2022, MoM, %)

Source: Bloomberg, InterCapital Research

Meanwhile, on a YTD basis, only Luka Koper recorded growth, increasing by 6.1%. On the other hand, the largest decline was recorded by Krka, which lost 21.2% of its value, followed by Petrol at 18.5%, NLB at 16.5%, Sava Re at 12.5%, and Telekom Slovenije, at 12.1%.

Performance of SBITOP constituents (November 2022, YTD, %)

Source: Bloomberg, InterCapital Research

What this can tell us is that even though the Slovenian equity market managed to somewhat recover during the last 2 months, it is still a lot lower than its levels at the beginning of the year. However, due to the current inflationary and geopolitical situation, as well as the fact that the Slovenian blue chips which make up the majority of the LJSE reached all-time highs in their value at the end of 2021, this decline is to be expected.