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On Thursday, JPMorgan analysts downgraded OMV AG (ETR:OMVV) (OMV:AV) (OTC: OMVKY) stock from Overweight to Underweight, adjusting the price target from EUR 46.00 to EUR 40.00. The downgrade was influenced by a combination of factors, including a tepid outlook for the year 2025, valuation concerns, and the complexities surrounding the company’s Russian investments.
The analysts at JPMorgan have revised their earnings estimates for OMV AG for the years 2025 and 2026, expecting a 10-20% decrease in operational profit and net income. This adjustment is despite an anticipated improvement in the company’s chemicals segment, which is projected to see earnings rise from EUR 450 million in 2024 to more than EUR 700 million and EUR 980 million in the following two years. However, the forecasted earnings still fall 10-15% short of the consensus for those years.
Valuation issues also played a role in the downgrade, with the analysts pointing out that OMV’s price-to-earnings ratio for 2025 is approximately 8 times, which is less than a 10% discount compared to other European oil companies. Historically, OMV has traded at a discount closer to 20%. The analysts expressed concern that the potential for further mergers and acquisitions, specifically the terms for the Borouge/Borealis combination and the addition of Nova, could limit the potential for OMV’s stock to continue its recent re-rating.
OMV’s involvement in Russia was cited as the third factor influencing the downgrade. According to JPMorgan, the company’s Russian assets may face challenges in realizing their value, especially under ceasefire scenarios. The analysts noted that claims for reserve redetermination could amount to approximately EUR 400 million within upstream operations. Additionally, the nearly EUR 1 billion balance associated with the Nord Stream 2 pipeline was structured as a loan instead of equity ownership, which could complicate matters further.
OMV’s stock had experienced a 10% rally over the past two weeks, which the analysts attributed to the market’s recognition of the company’s petrochemical segment as a hedge against European gas volatility. However, JPMorgan suggests that investors consider selling into this recent strength based on the factors outlined above.
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