Hellenic Petroleum |
Recovery in oil demand supports operations |
Q321 results |
Oil & gas |
23 November 2021 |
Share price performance
Business description
Next events
Analysts
Hellenic Petroleum is a research client of Edison Investment Research Limited |
Hellenic Petroleum, a leading oil refiner in Greece, reported Q321 EBITDA of €125m, up 90% from Q320 (€66m), with improved performance across all segments. We expect it to continue to benefit from favourable refining margins and higher demand for transport fuels in the coming months due to increased economic activity. However, this should be partially offset by higher operating costs due to sharply rising energy prices.
Year-end |
Revenue |
Adjusted EBITDA* (€m) |
Net debt** |
P/E |
Dividend yield |
12/19 |
8,857 |
570 |
1,544 |
10.0 |
8.3 |
12/20 |
5,782 |
333 |
1,673 |
N/A |
1.7 |
12/21e |
8,639 |
379 |
1,841 |
22.4 |
2.3 |
12/22e |
8,869 |
624 |
1,558 |
8.0 |
5.0 |
Note: *Adjusted numbers account for inventory movements and other one-off items. **Net debt excludes lease liabilities.
Improvement in refining environment
The strong Q321 performance was driven by a significant increase in benchmark margins ($3.3/bbl versus -$0.8/bbl in Q320), higher fuel demand and operational improvements. However, at the profit level it was partially offset by high carbon costs and exceptionally high energy costs. As natural gas and electricity prices have been higher than expected and remain so, we have updated our assumptions, which translates into a 15% reduction in our FY21 EBITDA estimate (-32% in refining). With the realisation of Vision 2025, this could be mitigated by electricity generation from renewables.
Restructuring is ongoing
Hellenic is progressing with the demerger of its refining, supply, trading and petrochemical businesses, subject to final approval by shareholders at its general meeting in December. The resultant new company structure will support the growth of its clean energy activities via appropriate financing and increase Hellenic’s value transparency. Meanwhile, the company confirmed the planned start of a 204MW photovoltaic park in Kozani in Q122 and has an additional c 700MW in its renewable energy sources portfolio at an advanced permitting stage.
Sale of DEPA may boost dividend in 2022
Hellenic expects the sale of DEPA Infrastructure (in which Hellenic owns a 35% share) to be completed in H122, subject to regulatory approvals. Management indicated that it plans to return 50% of the proceeds to shareholders in FY22, equating to c €128m or €0.42 per share. This is in addition to the annual dividend, which the company expects to be higher than in 2021 (€0.10).
Valuation: Blended valuation of €6.91/share
Our valuation is based on the company's current state, and is derived from a blend of DCF, EV/EBITDA and P/E. Hellenic is trading at a premium to European peers (6.6x FY22e EV/EBITDA versus 5.0x and 8.2x FY22e P/E versus 7.3x). Our valuation increases to €6.91/share from €6.80/share, reflecting higher peer group multiples, while our DCF valuation is unchanged at €7.41/share.
Strong demand and margins support earnings growth
In Q321, Hellenic reported adjusted EBITDA of €125m versus €66m in Q320 and €79m in Q221, mainly driven by the recovery in oil demand and improved benchmark refining margins following several quarters of historic lows. Apart from factors related to market conditions (Exhibit 1), Q321 performance was supported by operational improvement in refining and marketing, with the first results from the strategic transformation programmes (digital transformation and procurement). However, that was partially offset by a significant increase in variable operating costs, owing to a sharp rise in international natural gas prices to multi-year highs (€49/MWh in Q321, up c 500% year-on-year), which affected electricity prices, along with a significant increase in the carbon price (average of €59/tonne in Q321, up c 110% y-o-y).
Exhibit 1: Adjusted EBITDA bridge (Q321 versus Q320) |
Source: Hellenic Petroleum |
Benchmark refining margins improved
Refining margins recovered to pre-pandemic levels in Q321, supported by widening crude oil differentials following the output increase by OPEC+ (Organization of the Petroleum Exporting Countries and their allies) as well as higher demand for the main product cracks. Refining benchmark margins improved further in October, reaching $6.4/bbl (fluid catalytic cracking) and $6.2/bbl (hydrocracking). The October increase is shown in Exhibits 2 and 3. Management expects higher benchmark margins along with an increase in sales (due to higher demand) to positively affect refining profitability in Q421 as well.
Exhibit 2: Benchmark margin ($/bbl) for fluid catalytic cracking |
Exhibit 3: Benchmark margin ($/bbl) for hydrocracking |
Source: Hellenic Petroleum |
Source: Hellenic Petroleum |
Exhibit 2: Benchmark margin ($/bbl) for fluid catalytic cracking |
Source: Hellenic Petroleum |
Exhibit 3: Benchmark margin ($/bbl) for hydrocracking |
Source: Hellenic Petroleum |
In Q321, crude oil prices averaged US$73/bbl compared with US$69/bbl in Q221 and were significantly higher than the 2020 average of US$42/bbl. A further increase was observed in October and November, with crude oil prices above US$80/bbl. If the high pricing environment continues, at some point it may affect fuel demand adversely. However, in the near term, on a reported basis, high oil prices allow Hellenic to recover the inventory losses it reported in FY20.
Demand recovery
In Q321, demand for Greek domestic market fuels rose 8% y-o-y to 1.6m metric tons (MT) (Exhibit 4), almost returning to 2019 levels. This was driven by an increase in mobility following the lifting of travel restrictions, along with increased economic activity and a recovery in tourism. Although significantly rising y-o-y, aviation fuel consumption, supported by a recovery in tourism (476k MT versus 218k MT), was still 20% lower than in Q319. As for bunker fuel, demand increased to 712k MT (+28% y-o-y), but was still significantly lower than Q319 (Exhibit 5).
Exhibit 4: Domestic market fuel demand (MT 000s) |
Exhibit 5: Aviation and bunker fuel demand (MT 000s) |
Source: Hellenic Petroleum |
Source: Hellenic Petroleum |
Exhibit 4: Domestic market fuel demand (MT 000s) |
Source: Hellenic Petroleum |
Exhibit 5: Aviation and bunker fuel demand (MT 000s) |
Source: Hellenic Petroleum |
With an improving overall macroeconomic environment, we expect domestic traffic and air travel to remain favourable, driving demand for road and jet fuel in Greece and its neighbouring countries. This should benefit Hellenic in Q421. However, a sustained recovery in the macroeconomic environment may depend on the trajectory of the COVID-19 pandemic.
Financials
Changes to estimates
In Q321, energy costs were unexpectedly high due to a sharp rise in natural gas and electricity prices (€26m ahead of our previous forecast). As we expect those prices to remain high, we have increased costs in Q421 by €30m versus our previous estimates. The refining benchmark margin of $3.3/bbl in Q321 was significantly higher than -$0.8/bbl in Q320, but below our expectations of $4.0/bbl. We have increased the Q421 refining margin to $4.0/bbl from US$3.0/bbl on the back of favourable October margins (implying $5.0/bbl). This translated into a net 32% reduction in our EBITDA refining forecasts for FY21, while our FY21 total adjusted EBITDA estimate is 15% below our previous forecast (Exhibit 6).
Our FY22 EBITDA forecast remains broadly unchanged. We expect higher operating costs (due to high electricity and natural gas prices) to be balanced by higher refining margins ($3.3/bbl from US$2.9/bbl) and a favourable exchange rate (stronger US dollar). Net income in FY22 should also be supported by the reduction in finance costs as Hellenic paid down €200m debt (with a 4.875% interest rate) in October.
Exhibit 6: Changes to Edison forecasts
€m |
Actual |
Edison new |
Edison old |
Difference (%) |
|||
|
FY20 |
FY21e |
FY22e |
FY21e |
FY22e |
FY21e |
FY22e |
Adjusted EBITDA, refining |
187 |
132 |
380 |
194 |
379 |
-32% |
0% |
Adjusted EBITDA, petrochemicals |
61 |
141 |
109 |
146 |
108 |
-4% |
1% |
Adjusted EBITDA, marketing |
97 |
122 |
121 |
117 |
119 |
5% |
1% |
Adjusted EBITDA, RES |
- |
- |
18 |
- |
18 |
- |
- |
Total adjusted EBITDA |
333 |
379 |
624 |
448 |
624 |
-15% |
0% |
Adjusted EBIT |
85 |
133 |
373 |
203 |
377 |
-34% |
-1% |
Finance costs |
(115) |
(103) |
(80) |
(103) |
(85) |
-1% |
-5% |
Adjusted net income |
5 |
83 |
231 |
117 |
227 |
-29% |
2% |
Source: Hellenic Petroleum data, Edison Investment Research
Net debt
The balance sheet at end-September showed net debt (excluding lease liabilities) of €1,866m, €193m higher than end-FY20 net debt of €1,673m, as 9M21 cash flow from operations was more than offset by €180m capex (c €100m spent on the Kozani project). Also, 9M21 operating cash flow of €97m was negatively affected by increased inventories (€420m), owing to higher oil prices. In Q421, we expect net cash flow to be broadly neutral, with the unfavourable working capital movement mostly offset by improved operations. Our end-FY21 net debt (excluding lease liabilities) forecast is €1,841m (versus €1,733m previously).
Exhibit 7: Net debt and net debt/EBITDA estimates |
Source: Hellenic Petroleum, Edison Investment Research. Note: Net debt excludes lease liabilities. |
Valuation
Our forecasts and valuation are based on the company's current state. We do not include future projects presented in Vision 2025, or any capital expenditure or returns associated with them. We await further information about this from the company. However, we see potential for upside from the new strategy and plan to update our valuation once we have better visibility.
We value Hellenic using a blend of DCF, leveraged and unleveraged EV/EBITDA, and P/E multiples, arriving at a valuation of €6.91/share, 2% above our last published estimate (€6.80/share), primarily on account of higher peer multiples.
Hellenic trades at FY22e multiples of 8.2x P/E and 6.6x EV/EBITDA (FY22 EPS and EBITDA assumptions broadly unchanged versus our previous note), compared with the European group averages of 7.3x and 5.0x, respectively. Hellenic’s EV per complexity-adjusted barrel is higher than the European peer average at $1,377bod.
Our DCF valuation is unchanged at €7.41/share as we keep our forecasts for FY22 and beyond mostly unchanged. We roll our DCF model forward to Q421. Our valuation is based on cash flows to 2035, using a 7% cost of capital. We incorporate a terminal value, which assumes the unwinding of working capital and 1% terminal growth.
Exhibit 8: Hellenic valuation |
Source: Edison Investment Research, Refinitiv. Note: Priced at 19 November 2021. Range in DCF for ±1% WACC. |
Exhibit 9: DCF (€/share) sensitivity to terminal growth and WACC
Terminal growth/ WACC |
-3.0% |
-2.0% |
-1.0% |
0.0% |
1.0% |
5.0% |
9.61 |
10.17 |
10.91 |
11.94 |
13.49 |
6.0% |
8.07 |
8.45 |
8.94 |
9.59 |
10.50 |
7.0% |
6.81 |
7.08 |
7.41 |
7.84 |
8.42 |
8.0% |
5.76 |
5.95 |
6.19 |
6.48 |
6.87 |
9.0% |
4.86 |
5.01 |
5.18 |
5.39 |
5.65 |
Source: Edison Investment Research
Exhibit 10: Peer group valuation
|
Market cap |
EV |
P/E |
P/E |
EV/EBITDA |
EV/EBITDA |
FCF yield |
FCF yield |
P/CF |
P/CF |
Net debt/ |
Net debt/ |
Div yield |
Refining capacity |
EV/bod of complexity adjusted capacity |
|
Edison estimate – Hellenic |
1,902* |
4,147* |
22.8 |
8.2 |
10.8 |
6.6 |
-2.6% |
21.7% |
8.8 |
3.4 |
4.9 |
2.5 |
2.2% |
344 |
1,377 |
|
Grupa Lotos |
2,571 |
2,917 |
5.8 |
6.7 |
3.3 |
3.4 |
- |
- |
3.6 |
4.6 |
0.6 |
0.6 |
1.1% |
211 |
1,246 |
|
Hellenic Petroleum (consensus) |
2,147 |
4,407 |
21.0 |
9.0 |
8.9 |
6.2 |
- |
- |
3.6 |
3.2 |
4.6 |
3.2 |
4.1% |
344 |
1,377 |
|
Motor Oil Hellas Corinth Refineries |
1,776 |
3,484 |
9.4 |
6.1 |
7.3 |
5.5 |
-21.0% |
12.5% |
3.2 |
3.2 |
2.4 |
1.8 |
6.6% |
186 |
1,623 |
|
Polski Koncern Naftowy Orlen |
8,050 |
10,907 |
4.7 |
7.3 |
3.7 |
4.0 |
-3.6% |
- |
2.8 |
3.3 |
1.2 |
1.3 |
1.1% |
718 |
1,650 |
|
Saras |
645 |
1,178 |
- |
- |
11.0 |
4.6 |
0.3% |
12.9% |
3.8 |
3.3 |
5.6 |
2.3 |
0.0% |
300 |
336 |
|
Turkiye Petrol Rafinerileri |
3,533 |
4,581 |
12.2 |
7.6 |
7.3 |
6.0 |
7.6% |
10.0% |
8.5 |
6.5 |
2.5 |
2.0 |
0.2% |
602 |
800 |
|
Europe average |
3,120 |
4,579 |
10.6 |
7.3 |
6.9 |
5.0 |
-4.2% |
11.8% |
4.3 |
4.0 |
2.8 |
1.9 |
2.2% |
394 |
1,172 |
|
CVR Energy |
1,605 |
2,913 |
- |
18.0 |
9.8 |
5.1 |
17.1% |
14.7% |
3.8 |
4.2 |
3.4 |
1.8 |
17.8% |
185 |
1,211 |
|
HollyFrontier |
5,068 |
7,262 |
14.2 |
8.8 |
6.5 |
6.0 |
-3.0% |
12.9% |
5.4 |
4.3 |
1.6 |
1.1 |
1.4% |
457 |
1,271 |
|
Marathon Petroleum |
37,108 |
58,909 |
34.5 |
14.2 |
8.0 |
6.5 |
13.2% |
11.7% |
9.7 |
5.3 |
4.2 |
3.5 |
3.9% |
2,874 |
1,934 |
|
Phillips 66 |
30,514 |
44,985 |
16.2 |
10.0 |
9.1 |
7.0 |
9.4% |
10.1% |
6.6 |
6.4 |
2.7 |
2.1 |
5.2% |
2,184 |
1,873 |
|
Valero Energy |
28,238 |
40,086 |
- |
11.3 |
9.9 |
6.0 |
7.6% |
11.2% |
6.7 |
5.2 |
2.8 |
1.7 |
5.7% |
3,100 |
1,134 |
|
Americas average |
20,507 |
30,831 |
21.6 |
12.5 |
8.7 |
6.1 |
8.8% |
12.1% |
6.4 |
5.1 |
3.0 |
2.0 |
6.8% |
1,760 |
1,485 |
|
Total average |
11,023 |
16,512 |
14.7 |
9.9 |
7.7 |
5.5 |
3.1% |
12.0% |
5.2 |
4.5 |
2.9 |
1.9 |
4.3% |
1,015 |
1,314 |
|
Total median |
3,533 |
4,581 |
12.2 |
9.0 |
8.0 |
6.0 |
7.6% |
12.1% |
3.8 |
4.3 |
2.7 |
1.8 |
3.9% |
457 |
1,271 |
Source: Edison Investment Research, Refinitiv. Note: Priced at 19 November 2021. *FX = US$1.12/€
Exhibit 11: Financial summary
IFRS; year-end 31 December |
€m |
|
2018 |
2019 |
2020 |
2021e |
2022e |
INCOME STATEMENT |
|
|
|
|
|
|
|
Total revenues |
|
|
9,769 |
8,857 |
5,782 |
8,639 |
8,869 |
Cost of sales |
|
|
(8,770) |
(8,052) |
(5,818) |
(7,785) |
(8,228) |
Gross profit |
|
|
999 |
805 |
(36) |
855 |
641 |
SG&A (expenses) |
|
|
(475) |
(470) |
(453) |
(444) |
(446) |
Other income/(expense) |
|
|
(10) |
6 |
(13) |
2 |
3 |
Exceptionals and adjustments |
|
|
(19) |
2 |
(587) |
279 |
(175) |
Reported EBIT |
|
|
514 |
341 |
(501) |
413 |
198 |
Finance income/(expense) |
|
|
(146) |
(151) |
(115) |
(103) |
(80) |
Profit (loss) from JVs / associates (post tax) |
|
|
(2) |
18 |
30 |
47 |
16 |
Other income (includes exceptionals) |
|
|
2 |
(1) |
5 |
13 |
0 |
Reported PBT |
|
|
369 |
207 |
(582) |
370 |
133 |
Income tax expense (includes exceptionals) |
|
|
(154) |
(43) |
185 |
(72) |
(33) |
Reported net income |
|
|
215 |
164 |
(397) |
298 |
100 |
Basic average number of shares, m |
|
|
306 |
306 |
306 |
306 |
306 |
Basic EPS (€) |
|
|
0.7 |
0.5 |
(1.3) |
1.0 |
0.3 |
Adjusted EBITDA |
|
|
730 |
570 |
333 |
379 |
624 |
Adjusted EBITDA margin (%) |
|
|
7.5 |
6.4 |
5.8 |
4.4 |
7.0 |
Adjusted EBIT |
|
|
533 |
339 |
85 |
133 |
373 |
Adjusted PBT |
|
|
388 |
205 |
5 |
91 |
308 |
Adjusted net income |
|
|
296 |
185 |
5 |
83 |
231 |
Adjusted EPS (€) |
|
|
0.97 |
0.61 |
0.04 |
0.27 |
0.76 |
DPS (€) |
|
|
0.75 |
0.50 |
0.10 |
0.14 |
0.30 |
BALANCE SHEET |
|
|
|
|
|
||
Property, plant and equipment |
|
|
3,269 |
3,298 |
3,380 |
3,415 |
3,311 |
Intangible assets |
|
|
106 |
104 |
106 |
108 |
108 |
Other non-current assets |
|
|
529 |
744 |
797 |
823 |
836 |
Total non-current assets |
|
|
3,903 |
4,146 |
4,283 |
4,346 |
4,255 |
Cash and equivalents |
|
|
1,276 |
1,088 |
1,203 |
743 |
1,025 |
Inventories |
|
|
993 |
1,013 |
694 |
1,328 |
1,100 |
Trade and other receivables |
|
|
822 |
840 |
582 |
643 |
574 |
Other current assets |
|
|
3 |
6 |
12 |
55 |
55 |
Total current assets |
|
|
3,094 |
2,947 |
2,492 |
2,768 |
2,754 |
Non-current loans and borrowings |
|
|
1,627 |
1,610 |
2,131 |
1,806 |
1,806 |
Non-current lease liabilities |
|
|
|
169 |
171 |
170 |
170 |
Other non-current liabilities |
|
|
420 |
448 |
294 |
345 |
345 |
Total non-current liabilities |
|
|
2,047 |
2,227 |
2,597 |
2,322 |
2,322 |
Trade and other payables |
|
|
1,349 |
1,402 |
1,547 |
1,810 |
1,646 |
Current loans and borrowings |
|
|
1,109 |
1,022 |
745 |
778 |
778 |
Current lease liabilities |
|
|
|
31 |
30 |
25 |
25 |
Other current liabilities |
|
|
97 |
84 |
8 |
6 |
6 |
Total current liabilities |
|
|
2,555 |
2,539 |
2,329 |
2,619 |
2,455 |
Equity attributable to company |
|
|
2,331 |
2,262 |
1,786 |
2,109 |
2,168 |
Non-controlling interest |
|
|
64 |
65 |
62 |
64 |
64 |
CASH FLOW STATEMENT |
|
|
|
|
|
||
Profit before tax |
|
|
369 |
207 |
(582) |
370 |
133 |
Depreciation and amortisation |
|
|
197 |
231 |
248 |
246 |
252 |
Other adjustments |
|
|
237 |
172 |
233 |
245 |
64 |
Movements in working capital |
|
|
(296) |
26 |
528 |
(627) |
133 |
Income taxes paid |
|
|
(5) |
(149) |
23 |
(24) |
(33) |
Cash from operations (CFO) |
|
|
503 |
486 |
450 |
210 |
549 |
Capex |
|
|
(157) |
(241) |
(288) |
(259) |
(148) |
Acquisitions & disposals net |
|
|
(16) |
(5) |
(6) |
0 |
0 |
Other investing activities |
|
|
311 |
29 |
17 |
14 |
5 |
Cash used in investing activities (CFIA) |
|
|
138 |
(218) |
(277) |
(244) |
(142) |
Net proceeds from issue of shares |
|
|
(1) |
0 |
0 |
0 |
0 |
Dividends paid in period |
|
|
(151) |
(155) |
(154) |
(32) |
(41) |
Movements in debt |
|
|
(97) |
(111) |
252 |
(299) |
0 |
Other financing activities |
|
|
4 |
(160) |
(144) |
(109) |
(83) |
Cash from financing activities (CFF) |
|
|
(244) |
(458) |
(47) |
(439) |
(124) |
Increase/(decrease) in cash and equivalents |
|
|
397 |
(189) |
125 |
(474) |
283 |
Currency translation differences and other |
|
|
5 |
2 |
(11) |
13 |
0 |
Cash and equivalents at end of period |
|
|
1,275 |
1,088 |
1,203 |
743 |
1,025 |
Net (debt)/cash (incl. lease liabilities) |
|
|
(1,460) |
(1,744) |
(1,874) |
(2,037) |
(1,754) |
Net (debt)/cash (excl. lease liabilities) |
|
|
(1,460) |
(1,544) |
(1,673) |
(1,841) |
(1,558) |
Source: Hellenic Petroleum, Edison Investment Research
|
|