PKN ORLEN S.A.: The STAR gas station as a Polish dividend star 🇵🇱 with 5.6% div. yield? (PART 1) $PKN (+3,9%)
Czesc przyjaciele,
After my last article on e-mobility in Germany made waves and the discussion was largely objective, today we are dealing with a gas station network operator called PKN ORLEN - better known as the operator of the STAR gas stations. Thematically, therefore, we remain on the subject of mobility - only now from the point of view of the fuel suppliers.
You are welcome to read my first part on e-mobility at the following link. Please also tell me there if you would like to read a second part. I'm always happy when the contributions meet with a great deal of interest from the community:
https://app.getquin.com/activity/LsVmdGDGGm?lang=de&utm_source=sharing
Before we start as always my disclaimer:
Disclaimer: This is not investment advice. It is also not an invitation to buy/sell financial products. I am merely stating my opinion here. You have your own responsibility towards your investments. So I do not take any liability.
So that we start from the same page, I foresee the following outline:
PART 1
1. PKN ORLEN S.A in figures, data and facts - an unknown dividend star? Comparison with industry, sector and continent
PART 2
2. fundamental analysis of the share via BASS-T analysis and Graham extrapolation
PART 3
3. cross-check of PKN Orlen S.A. via Piotroski Score and concluding remarks on the topic
PKN ORLEN S.A., headquartered in Plock, Poland, is a refiner of mineral oil and is known primarily to you by a specific brand name: STAR. This is because, in addition to its role as a refiner of mineral oil, PKN ORLEN S.A. performs an important function as the operator of a network of service stations (see (1), (2)).
600 STAR and ORLEN service stations in Germany are accounted for by the German subsidiary ORLEN Deutschland GmbH alone (cf. (3)).
29 billion euros in annual sales and the addition of a service station network of OMV Deutschland GmbH, which consisted of 56 service stations after all, are decisive for the expansion course of this energy group (cf. ibid.).
These points, among others, make PKN ORLEN S.A., the umbrella company of ORLEN Deutschland GmbH, the largest company in Central Eastern Europe (cf. ibid.).
But where can I find PKN ORLEN S.A.? Where does their money come from?
Basically, PKN ORLEN S.A. can be found in Poland, Germany and various Eastern European countries. A look at the regions tells us that the domestic market in Poland contributed to 55.9% of sales in 2020 and 54.6% in 2021. No other country achieves such high values, because if we look at the remaining countries, we see that Germany is far behind in second place with just 13.1% of sales in 2021. With the exception of the category "Other countries", the focus markets are isolated at country level in the following countries (see (2)):
- Poland (54.6%)
- Germany (13.1%)
- Czech Republic and Slovakia (11.6%)
The 4th place goes to the group of Lithuania, Latvia and Estonia. TOGETHER, these account for just 6% of sales. A look at the shareholder portfolio reveals, unsurprisingly, that the Polish government has a 49.9% stake in this utility. The remaining shares are all below 5.3% each and therefore relatively insignificant compared to the share of the Polish government (cf. ibid.).
The company is listed in a relatively niche-like manner in specific markets and indices, which include, for example, the STOXX Europe in its expansion with 600 companies. The more regionally specific STOXX Eastern Europe requires only 50 companies to include PKN ORLEN S.A. (cf. ibid.).
Upon closer examination, it is hard to argue away PKN ORLEN S.A.'s influence on the STOXX Europe 50 Index. While the top sector is NOT the energy sector, but banks with a 27.5% share, the energy sector follows in second place with a large gap to consumer staples, services, etc. A similar picture emerges in the weighting by country. Although Turkey has the largest share of the index with a weighting of 32.4%, it is followed by Poland with 32.2%. Only then come Greece, Hungary, the Czech Republic, etc., with a majority weighting of less than 10% (see (2), (4)).
Why is this so? Why is this king of the Central Eastern European energy sector so unknown? What does it offer investors, among other things?
If you look at the performance of the STOXX Europe 50, its negative return of -11.1% per annum over the last 5 years in a 5-year cycle is strikingly negative. If this is related to a single year only, it is even a proud 52.5%....IM MINUS (see (4)).
If one wants to exclude major external effects, most index operators offer a benchmark in the form of an additional index. In the case of the STOXX Europe 50, the STOXX Europe Total Market Index is used. I will go into why I find this somewhat unfortunate later.
So while the STOXX Eastern Europe 50 with PKN Orlen has lost an annualized 11.1% over the last 5 years, the STOXX Europe Total Market Index (SETM) "shines" with a return of 1.8% after all (see (4)).
What does this tell us about PKN Orlen S.A.?
Nothing to not much. Even though PKN Orlen S.A. is the largest position in the index at 6.1%. Here are my 3 thoughts on why this sector comparison is too macro and can only provide a rough overview of PKN Orlen S.A. (see (3), (4), (5)):
1) The industry structure of the SETM is unequal - The related index of the STOXX Europe Total Market Index is logically much broader in terms of its overall industry structure and includes markets in which PKN Orlen S.A. is not active.
2) The energy sector is only a minor sub-factor with just 6.6% in 5th place.
3) At most, Germany in 4th place in the index weighting represents a main market for PKN Orlen S.A..
Why do you explain this?
In fundamental analyses, you can start from the small (i.e. the group), approach the medium (i.e. the energy sector of Central Europe) to the macro level (the associated index - in this case: the STOXX Europe Total Market Index). I always choose this approach when I want to analyze a single company on its own.
We now know that PKN Orlen S.A. is part of an index that has performed 11.1%+1.8% = 12.9% worse than the broad European market over the last 5 years (see (4), (5)).
Is that it already? Can we go home already?
No - because we are comparing sector bets here (STOXX Europe 50 Total Market Index) with the broad European market (STOXX Europe Total Market Index). We now have to do two things according to the previous explanations:
1) How does PKN Orlen S.A. perform in isolation compared to the benchmark index?
2) How does PKN Orlen S.A. perform compared to the energy sector?
3) How does PKN Orlen S.A. perform compared to "common" dividend stocks from the energy sector?
We start with 1) the benchmark index. Using (6), I compare the largest position of the index with itself and find relatively significant differences. Year-on-year, the index underperforms PKN Orlen S.A. very significantly. We recognize:
PKN Orlen S.A. has lost about 26.10% in value, but the benchmark index has been MINIMUM 20% weaker than PKN Orlen S.A. since February 2022. In fact, the largest difference was reported in July 22: PKN Orlen S.A. at 90% (i.e. 10% loss) and the benchmark index more than 58% worse in comparison with just over 38% value retention since one year. The 200-day moving average is almost at a 45° angle, approaching the -48% mark from almost 0% divergence in January 2022. The 50-day average shows the decline of the index all the more, but it has been below the real price since the end of October (see (6)).
What does this tell us?
It is relatively simple: In the long term (200-day average), the index has performed much stronger and is far from reaching its original potential. In the short term (50-day average), it seems that a first recovery has already started in relative terms since the end of October and the price is approaching its long-term trend again. If one were in an unknown market, one could thus conclude a sudden and devastating event, whereas first recovery tendencies are visible (see (6)).
If we extend the chart analysis to the 3-year cycle, we get a surprising picture. PKN Orlen S.A. underperformed the market and this by an average of about 10% up to the described 1-year period. The long-term trend, shown here via 200-day moving average, illustrates the immense volatility potential of the STOXX Europe 50. However, against the background of the lack of diversification of only 50 companies by market capitalization, this is hardly surprising and highlights a typical sector betting problem. Contrary to popular belief, there is NO "free lunch" on the stock market - the more diversification the less potential return (cf. (6), (7)).
The present sector development underpins my opinion more than clearly at this point: If I want more return, I have to turn the risk screw. In the following, I call this the risk-return tradeoff. I would like to dwell in particular on the key opinion (3) of source 8. Translated into German, this states:
"Investors use the risk-money tradeoff to make decisions about individual investments [here that would be PKN Orlen S.A., author's note] and entire portfolios [that is done by the respective investor for himself, author's note]" (source (8)).
The STOXX Eastern Europe 50 Index failed as a sector bet against the investment in PKN Orlen S.A.. It must therefore be stated here that in this comparison no conclusion can yet be drawn against PKN Orlen S.A.. We now know:
- In the 1-year cycle, the forecast for PKN Orlen S.A. seems positive, if necessary.
- In the 3-year cycle, there is a risk of underperformance against the corresponding European market index.
Let's now look specifically at the energy sector and put PKN Orlen S.A. in relation to the iShares MSCI Europe Energy Sector UCITS ETF. This ETF includes only energy companies from Europe and focuses on high and mid cap positions. It was launched in November 2020, consists exclusively of equities, and as many as 99.98% of the companies included are ESG screened. So there is data available for these companies, which shows that the data quality on the companies is high quality.
If we look at the top positions, we notice an absence of PKN Orlen S.A.. Instead, Shell, Total, BP are in positions 1-3 and occupy 68.03% of the index (see (9)).
Why then is the ETF optimal for comparison?
All companies are directly or indirectly compared to PKN Orlen S.A. via their service station network or their petroleum exposure, so we can see an isolated difference to PKN Orlen S.A. in the composition here.
If we compare PKN Orlen S.A. with this sector in a 1-year comparison, the difference between the two financial products is 25.02% in favor of the ETF. However, the truth is also that PKN Orlen S.A. outperformed the market from December 2020 up to and including January 2022, and at its peak it did so by up to 50.51% in October 2021. Due to the particularly short-term trend in the 3-month comparison, we notice an alignment, so that the current difference between the market and PKN Orlen S.A. is approximately 8.71%. It can therefore be stated that PKN Orlen S.A.:
- For a long time outperformed the overall market with stars like Shell, BP and co.
- The year 2022 was a trend reversal and not a good year for PKN Orlen S.A.
- The stock might just have an interesting entry point purely based on chart analysis.
Just to clarify the latter, I will follow with a quantitative stock analysis in a moment. I use charts only to visualize a result.
Let's take a look at a very mean comparison of a) the energy sector ETF and b) PKN Orlen S.A. with the Überkings Shell, Total and ExxonMobil.
Year-on-year, Shell's performance towards the end resembles that of the market, with a relatively strong outperformance visible initially. In May, this was as high as +23.15%. In this time horizon, Shell has thus adjusted to the market. Total, on the other hand, shows a rather clear underperformance of the market potential, which is particularly evident throughout the chart. It is irrelevant whether I refer to April (-20% in comparison), May (-10% in comparison) or even November (approx. -10%). This energy giant is clearly underperforming the market here.
ExxonMobil, on the other hand, is well above the market with a 37% difference and has consistently outperformed year over year. So what happens if I take PKN Orlen S.A. into the comparison with these giants and take out the sector ETF?
In the 3-month comparison we see a surprising result: PKN Orlen S.A. is the clear winner purely driven by performance, with a value gain of approx. 24%. Even ExxonMobil achieves only 1 percentage point more and finishes in 4th place. It is followed by Shell in 3rd place and Total in 2nd place (see (11)).
In a year-on-year comparison, however, PKN Orlen S.A. does not stand a chance and finishes with a difference of approx. 25%+15% = 40% to the third-place finisher in the form of Total Energies S.A.. Shell's difference is only insignificantly above at approx. 43% more return than PKN Orlen S.A., while ExxonMobil makes the rocket and closes relatively with approx. 80% more return (see (12)).
A devastating result.
Is that it for the Polish champion?
I don't think so - in my opinion, the current situation points to a competitive hidden champion, which is not without reason considered the largest Central Eastern European energy company and is essentially a sector leader in ETFs. Moreover, we have been talking exclusively on a fundamental-chart level so far.
What we have not done is to analyze PKN Orlen S.A. stock too quantitatively.
This will happen in the following second part! You will find it here for reasons of clarity and CCF competition:
PART 2:
https://app.getquin.com/activity/PuJDIhaiZQ?lang=de&utm_source=sharing
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If you are more interested in PepsiCo as a seasoned and better known company, you can find my latest analysis attached.
Thanks a lot!
Your Bass-T
#dividende
#dividendencheck
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#etfs
#etf
#orlen
Sources:
(2) https://www.marketscreener.com/quote/stock/POLSKI-KONCERN-NAFTOWY-OR-1413342/financials/
(3) https://www.orlen-deutschland.de/DE/UberORLEN/Ueber-Orlen/Seiten/UeberOrleninDeutschland.aspx
(4) https://www.stoxx.com/document/Bookmarks/CurrentFactsheets/EEBCV.pdf
(5) https://www.stoxx.com/document/Bookmarks/CurrentFactsheets/BKXGV.pdf
(8) https://www.investopedia.com/terms/r/riskreturntradeoff.asp
