Yesterday, Petrol held its Supervisory Board meeting, during which the 2024 business plan was discussed and endorsed. In this overview, we bring you a detailed summary.

Business Environment

In 2024, the Petrol Group anticipates facing considerable uncertainty due to unstable energy markets and geopolitical tensions, particularly related to the war in Ukraine and conflicts in the Middle East. Despite this, slight economic growth is forecasted, and inflation is expected to be slightly lower than in 2023, though substantial cost pressures are still foreseen. The Company plans to adhere to current regulations on petroleum product prices and margins, assuming that the existing Decree will not be extended beyond February.

Oil markets are stable, and the Slovenian petroleum product market is competitive, with the country having the lowest margin in Europe. The Company believes that due to these factors, further regulation is unnecessary. In 2024, energy market prices are expected to stabilize, with some regulation in electricity and natural gas prices in Slovenia. The Petrol Group’s business plan for 2024 involves adapting to market conditions by investing in renewables and the green transition, aligning with global sustainability trends. Additionally, preparations for a digitized operational landscape and new sales channels aim to ensure resilience and growth amid changing global dynamics.

Main orientations and risks

Due to the slow economic growth, Petrol expects sales will increase in the segment of fuels and petroleum products, especially motor fuels. The Company will compensate for the decrease in fuel oil sales by continuing to substitute them will alternative energy commodities. In the merchandise and services retail segment, they will continue offering a fast and convenient service to customers. They will also keep the market share in the sale of other energy commodities, i.e. electricity and natural gas, while simultaneously, expanding the network of owned and non-owned charging points. The Company also plans on increasing the share of renewables generation in the region, to keep up with the green transition. In the field of energy solutions, the main focus will be on industry and households. Finally, to mitigate the cost growth, they will continue their cost-optimisation activities.

In terms of the main risks, Petrol points towards interventions by the regulators in the price policy, geopolitical risks, and the negative effect of the energy crisis on the price of energy commodities, which directly affects the frequently changing regulatory frameworks that are occasionally adopted without any prior announcement, thus adversely affecting planning. Furthermore, the volatility of the energy markets exacerbates the conditions in petroleum product procurement and increases inflationary pressures on costs. Potential risks of supply chain disruptions are also present, which may affect the economic stability and regulatory requirements regarding bio-component blending in Slovenia and Croatia. The Decree on the promotion of the use of biofuels and other renewable fuels will also affect costs. Other risks of course include the deterioration of the economic outlook in Slovenia’s key partners, the volatility of the European market and related high market risks, as well as the labour force shortages.

Annual business targets

The 2024 plan targets sales revenue of EUR 5.8bn, as well as an adjusted gross profit of EUR 705.6m. This is based on a sale of 4.1m tons of fuels and petroleum products, as well as merchandise and services in the amount of EUR 667.5m, 16.4 TWh of natural gas, 12.4TWh of electricity, 147.7k MWh of heat, as well as by generating 204.4k MWh of electricity and selling energy and environmental solutions.

In terms of EBITDA, it is planned at EUR 304.6m, resulting in a net debt to EBITDA of 1.41x. Finally, they expect to make a net profit of EUR 156.5m. Moving on to investments, they will be focused on business expansion in the field of renewable electricity generation, the supply chain digitalisation, as well as on modernizing and increasing the number of service stations and expanding operations in the field of energy and environmental solutions. In total, the investments are planned at EUR 130m, of which energy transition projects make up 44%.

In 2023, despite challenges from the energy crisis and regulatory issues affecting results, the Petrol Group successfully stabilized operations, maintaining a good financial condition. Although performance fell short of ambitions due to energy price regulation, the Company remained committed to high standards, as recognized by S&P Global Ratings. Through optimizing processes and reducing costs, the Company established a strong foundation for the future. In 2024, there are plans to increase investments in energy transition, aiming to overcome setbacks from 2022 and 2023. The Petrol Group is dedicated to the energy transition and providing an excellent user experience, ensuring stability and profitability for shareholders in the evolving energy and economic landscape.

According to various reports, Banca Transilvania is in the final stages of an M&A agreement for OTP Bank’s Romania subsidiary. Furthermore, the OTP Romania subsidiary is valued closely at EUR 350m. In this overview, we’ll look at what this means for Banca Transilvania, as well as try to answer the question: Would this deal be favorable at EUR 350m for Banca Transilvania, or not?

Discussions regarding the M&A of OTP Bank’s Romania have been going on for quite some time now. According to the latest report by Bloomberg, OTP Bank has agreed to sell its Romanian unit to Banca Transilvania. While no details regarding the transaction price are yet available, according to media writings the business has been valued at app. EUR 350m.

The deal could be announced soon, possibly by the end of Q1 2024. OTP and Banca Transilvania have moved closer to the deal after meetings with senior executives last week. Discussions have been ongoing since late last year when Banca Transilvania remained the only remaining bidder in talks to acquire the unit. OTP’s decision to sell its Romanian unit came due to OTP’s desire to divest units that have smaller market shares. This deal would also mark the largest banking deal in the making in Romania.

Top 10 banks’ market share in Romania, by total assets (2022*, % of the total)**

*Latest available data for all the banks

**Alpha Bank has been acquired by Unicredit in October 2023

Together, the 10 largest banks accounted for app. 87.7% of the total market share in Romania at the end of 2022. At the same time, Banca Transilvania held app. 19% of the market share, while OTP Bank held 2.8%. Furthermore, the entire banking sector in Romania grew by app. 8% in the 9M 2023, while Banca Transilvania’s total assets grew by 18%, meaning that by the end of September, it held app. 20.8% of the entire market. At the same time, OTP Romania’s assets grew by 8%, to app. RON 21.5bn, meaning that based on the 9M 2023 results, it holds 2.8% of the market, remaining unchanged compared to 2022. As such, if acquired, Banca Transilvania would hold app. 23.6% of the entire market share in Romania.

If OTP Romania gets acquired at the estimated EUR 350m value, it would imply a P/B of 0.64x. For financial institutions, a P/B ratio is more often used, as the book value is more reflective of the true value of a financial institution, in this case, a bank, than it is in other industries. A P/B ratio below 1 is usually considered a “good” investment. However, it should be noted that there usually is a reason why a certain company/bank has a P/B lower than 1, but they don’t necessarily have to be negative. In this case, it would represent good value, especially if compared to other regional peers, and the banking sector median.

P/B comparison between regional banks, Bloomberg East Europe Banking Sector*

Source: Bloomberg, Companies’ data, InterCapital Research

*P/B based on the latest available data, excluding OTP Romania which is based on the deal described above

As we can see, the Bloomberg median for the East Europe banking sector amounts to 1.01x, while the Romanian banks are usually trading at an even higher multiple, while the regional peers in Croatia and Slovenia are trading at either similar or higher multiples. Of course, this is all subject to change, as no final transaction price has been announced as of yet.

Yesterday, NLB’s stock surged by 1.4%, reaching EUR 88.60 per share. In this quick overview, we’ll detail as to why.

Excluding the last 3 to 4 months of continued growth, the last time NLB’s share price reached its all-time high value was back in January 2021, at EUR 82 per share. Since then, the stock price has declined to app. EUR 53 per share at its lowest, in March 2022. This came due to the pressure that was present on the entire economy, and the expectations that a recession was bound to happen. A recession would of course, have a negative effect on the banking sector, as it would induce a higher amount of non-performing loans, or NPLs. Furthermore, elevated inflation rates also put general pressure on equity.

On the other hand, the start of the interest rate hikes back in July 2022 signaled that the time of “easy money” and quantitative easing was over. Banks benefited significantly from this development, as higher interest rates at the Central Bank also mean that higher interest rates on loans can be expected. This is exactly what happened from that point onwards, albeit with a somewhat delayed response.

As such, NLB recorded one of its best periods in history starting in the third/fourth quarter of 2022, and continuing to this day, on the back of higher net interest income, fuelled by the aforementioned higher loan interest rates. Furthermore, the ECB continually tests the banking stability of large European banks and has many regulatory requirements for these institutions. In this regard, NLB fulfilled all the requirements and continues to do so to this day. One key metric in measuring risk for banks is, of course, the cost of risk, which measures the provisions put aside for the potential deterioration in the economy, and thus higher levels of “bad” loans. Despite the whole situation, particularly during the winter of 2022 when energy prices were elevated significantly, the expected deterioration did not materialize.

This led to a double positive for NLB; on the one hand, higher profit was mostly driven by higher net interest income, while at the same time, lower provisions for the cost of risk. Of course, NLB also did several other things that surely improved the perception of the company, such as the launching of the green bond last year, as well as the upcoming new bond launch. Furthermore, the Company also announced the acquisition of Summit Leasing (more on which you can read here), while simultaneously continuing to pay out dividends, which amounted to EUR 5.5 per share in 2023 (in two tranches). Lastly, NLB has already upgraded its outlook for the upcoming years several times, further signaling the expected positive developments for the Bank.

All of these factors, combined with the general improvement in investor sentiment that has been present for the last couple of months, and which was further fueled by the expected interest rate cuts by ECB have all led to an increase in stock values, with NLB at the forefront. As a result, NLB’s share price grew by app. 1.4% yesterday, reaching a new all-time high of EUR 88.6 per share.

NLB, SBITOP price development (2019 – 2024 YTD, %)

Source: Bloomberg, InterCapital Research

Here you can find the dates for the upcoming events of the regional companies

Due to the nature of these events, they are subject to change (might be postponed or canceled).