HSBC downgrades OMV AG to ‘hold’ as growth prospects weaken

Investing.com -- HSBC Global Research has downgraded OMV AG (ETR:OMVV) to a "hold" rating, citing weaker production guidance, stagnating petrochemical margins, and an overall decline in cash flow expectations. 

The brokerage also lowered its target price for OMV to €42 from €46, reflecting a more cautious outlook on the Austrian energy company’s near-term prospects.

As per HSBC analysts, OMV’s upstream business, which is its primary cash generator, is suffering from natural production declines. 

The company’s latest guidance for 2025 forecasts hydrocarbon production at approximately 300,000 barrels of oil equivalent per day (kboed), a 12% drop from 2024’s 340 kboed. 

Even after accounting for the divestment of OMV’s Malaysian assets, which contributed around 28 kboed, the revised production forecast falls 5% below market consensus and 7% below HSBC’s previous estimate.

HSBC’s analysts noted that without any significant upstream growth until the planned start of the Neptun Deep project in 2027, OMV will likely face further production declines in 2026. 

This trend poses a challenge to the company’s cash flow generation, prompting HSBC to lower its 2025-26 production estimates by an average of 7%.

The petrochemicals segment also remains under pressure. HSBC analysts previously expected a gradual recovery in margins, but the latest guidance from OMV suggests that olefin and polyolefin margins will remain flat in 2025. 

Weak demand, persistent oversupply, and cost pressures continue to weigh on the European chemicals sector, delaying any meaningful turnaround. 

Furthermore, OMV’s potential chemical joint venture with ADNOC, which could now include Nova Chemicals, has revived uncertainty regarding the company’s long-term strategy in the sector.

On the dividend front, OMV has proposed a total payout of EUR4.75 per share for 2024, including a base dividend of €3.05 and an additional variable dividend of €1.70. 

While this remains at the higher end of the company’s 20-30% cash flow from operations (CFFO) payout range, HSBC considers the base dividend growth of 3.4% underwhelming compared to previous years, where the growth rate exceeded 5%. 

Additionally, lower cash flow projections for 2025-26 imply that absolute dividend distributions will decline by about 8% from prior expectations.

OMV’s valuation is no longer compelling, according to HSBC. The company’s free cash flow yield of about 9% and projected distribution yield of 12% for 2025-26 now align with the European sector average, eliminating the relative value advantage it previously held. 

Given the combination of weaker production trends, prolonged weakness in petrochemical markets, and a more uncertain earnings outlook, HSBC concluded that optimism around OMV has diminished.