Orlen, like other State Treasury companies, lags behind the performance of private businesses listed on the Warsaw Stock Exchange. Quarterly results that fell short of forecasts have caused some justifiable disappointment, prompting skeptical long-term investors to realize their profits. The weaker report has also heightened speculative concerns surrounding the company, which has been under scrutiny in recent months due to a PLN 1.6 billion writedown and ongoing investigations.
At the same time, the retail business (currently experiencing some slowdown), expansion beyond Poland’s borders, and potential benefits from higher refining margins and gas distribution could provide synergistic growth potential in the coming quarters. The decline in net margin and lower profit highlight the high cyclicality and variability of Orlen’s business results, which, after the acquisition of PGNiG, may be seen as risky. In a context requiring significant capital investments necessary to fulfill the 2030 strategic plan, the company may face higher costs in the coming years, not necessarily offset by higher margins and profits from its main business segments.
Nonetheless, despite the net profit being weaker than expected, it was solid, and the recommended dividend will likely reassure investors that Orlen can still benefit from positive sentiments surrounding Polish assets and the expansion of the Polish economy. However, a 25% drop in sales and a 70% year-on-year decrease in net profit suggest that the theoretically attractive fundamental valuation could be a ‘value trap,’ given the company’s business model is highly susceptible to cyclical fluctuations. In the coming years, Orlen will incur higher operating costs. Currently, the stock market does not give Orlen a chance to surpass the record results of 2022.
Eryk Szmyd, analyst at XTB
