Romgaz Q1 2025 presentation: Revenue growth amid higher taxation and strategic investments

Romgaz (SNG) reported a 4.7% increase in Q1 2025 revenue to 2.38 billion RON, driven by a 15% rise in gas sales volumes, though offset by lower regulated selling prices. Despite revenue growth, net profit decreased 24% to 951 million RON due to a more than fourfold increase in windfall profit taxes. Capital expenditures rose significantly to 854 million RON, primarily allocated to the Neptun Deep offshore project, which remains on track for first gas in 2027, while the company approved a dividend of 0.1568 RON per share.

Analysis

Societatea Nationala de Gaze Naturale Romgaz SA (SNG) reported a 4.7% increase in total revenues to 2.38 billion RON for Q1 2025, driven by a 15% rise in gas sales volumes to 1.386 billion cubic meters, while natural gas production remained stable at 1.29 bcm. However, this top-line growth, supported by operational improvements such as the reactivation of 38 wells, did not translate to higher profits due to significant external pressures. Net profit declined 24% year-over-year to 951 million RON, and EBITDA fell 18% to 1.309 billion RON, primarily impacted by a more than fourfold surge in the windfall profit tax to 322 million RON—stemming from a lower proportion of regulated household sales—and the constraining effect of a reduced regulated gas selling price for households (120 RON/MWh, down from 150 RON/MWh in Q1 2024). Despite these headwinds, Romgaz maintained robust profitability margins, with a net profit margin of 40.0%, and its Q1 2025 net profit was 44% above the three-year quarterly average. The company is heavily investing in future growth, with capital expenditures increasing significantly to 854 million RON, 73% of which is allocated to the Neptun Deep offshore project, which is progressing on schedule for first gas in 2027. The electricity segment showed revenue improvement of 3.5% to 113 million RON following the removal of price caps. Romgaz operates in a challenging Romanian market characterized by a 2% rise in Q1 gas consumption, a near 70% surge in gas imports (now 21% of total consumption), and approximately 60% higher Central European Gas Hub prices, alongside ongoing regulatory scrutiny and potential delays in other projects like the Iernut power plant.

Key Decisions for Investors

• Evaluate Romgaz's capacity to sustain revenue growth and market share (36% of total deliveries) amidst significant headwinds from increased windfall taxes and a restrictive regulated pricing environment that compressed Q1 2025 profits.
• Focus on the execution of the Neptun Deep project as the primary long-term catalyst, given its on-schedule progress and substantial capex allocation, while noting potential delays in other strategic projects like the Iernut power plant.
• Closely monitor Romanian regulatory and fiscal policies, particularly concerning energy pricing and taxation, as these factors have demonstrated a direct and material impact on the company's financial performance.
• Acknowledge the conservative 20% dividend payout ratio (0.1568 RON per share) as a strategic decision to fund ambitious capital investments, predominantly Neptun Deep, prioritizing long-term growth over higher immediate shareholder distributions.