Renewables addition as refining margins struggle

Hellenic Petroleum 18 November 2020 Update
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Hellenic Petroleum

Renewables addition as refining margins struggle

Q320 results

Oil & gas

18 November 2020

Price

€5.18

Market cap

€1,583m

US$1.13/€

Net debt (€m) at 30 September 2020

2,126

Shares in issue

305.6m

Free float

19%

Code

ELPE

Primary exchange

ASE

Secondary exchange

LSE

Share price performance

%

1m

3m

12m

Abs

14.4

(2.3)

(40.5)

Rel (local)

2.6

(9.9)

(23.7)

52-week high/low

€8.80

€4.14

Business description

Hellenic Petroleum operates three refineries in Greece with a total capacity of 344kbod and has sizeable marketing (domestic and international) and petrochemicals divisions.

Next events

FY20 results

25 February 2021

Analyst

Carlos Gomes

+44 (0)20 3077 5700

Hellenic Petroleum is a research client of Edison Investment Research Limited

Hellenic Petroleum experienced a challenging Q320 as benchmark refining margins fell to record-low levels. Demand for global crude oil and oil products remained low during the quarter that is typically strong for the company due to high tourist activity in Greece. Despite the current adversities, Hellenic maintained a strong operating performance and was capable of minimising the impacts of COVID-19. This was possible due to its storage capacity and the flexibility of its refining system. We have updated our estimates and valuation to reflect Q320 results and the impact of new lockdown measures in Europe. Our updated valuation is down 4% to €6.55/share, with an upside of 26% to the current share price.

Year-end

Revenue
(€m)

Adjusted EBITDA* (€m)

Net debt
(€m)

P/E
(x)

Dividend yield
(%)

12/18

9,769

730

1,460

8.0

14.5**

12/19

8,857

570

1,544

9.5

9.7

12/20e

6,088

330

1,851

26.8

9.7

12/21e

5,977

573

1,890

9.0

9.7

Note: *Adjusted numbers account for inventory movements and other one-off items. **Includes special dividend from DESFA proceeds.

Record-low refining margins affect results

In Q320, refining margins reached negative all-time lows. The outlook remains weak for the near term as economic uncertainty persists and new lockdowns are imposed. Refining margins recorded a small recovery at the beginning of Q420, as inventory clears, with some refiners curtailing production or terminating activities. We expect 2021 to be a difficult year, until a vaccine is available and global economies recover to pre-pandemic levels. Hellenic has a resilient refining system and is withstanding the current headwinds the industry is facing better than some of its peers, taking advantage of its synergetic business model.

Completion of Kozani 204MW project acquisition

Despite the challenging environment, Hellenic achieved two important milestones: the Aspropyrgos refinery turnaround without incident and the Kozani photovoltaic project acquisition. The full restart of the refinery is expected in November with improved environmental performance. Completion of the Kozani project acquisition demonstrates Hellenic’s commitment to renewables during these challenging times. Construction works are planned to commence in November and the project is expected to be fully operational in Q222.

Valuation: Blended valuation of €6.55/share

Our valuation is based on a blend of DCF, EV/EBITDA and P/E approaches. The company currently trades at a premium on 7.2x FY21e EV/EBITDA versus peers in Europe at 5.3x, and 9.0x FY21e P/E compared to the European sector average of 7.5x. Compared to US peers, Hellenic continues to trade at a discount on most metrics. Our blended valuation falls by 4% to €6.55/share (previously €6.81/share), reflecting expected lower demand for oil products in the coming quarters and lower realised margins as new lockdown measures are imposed in Europe.

Financials and changes to estimates

Key changes to our financial estimates and market expectations include weaker global demand for oil products during the year caused by the COVID-19 pandemic. As a consequence, we have lowered our refining margin estimates for Q420 and Q121 as most countries have implemented new lockdown measures to minimise the impacts of a second coronavirus wave. We expect margins to remain under pressure for at least the next three to six months, with subsequent improvements as the global economy recovers from the coronavirus pandemic and oil prices potentially remain at relatively subdued levels. All in all, our FY20 total EBITDA estimate is 13% lower vs our previous estimate to account for ongoing weakness in the benchmark margins and our FY21 total EBITDA estimate decreases by 5%.

Exhibit 5: Changes to Edison forecasts

€m

Actual

Edison new

Edison old

Difference (%)

 

FY19

FY20e

FY21e

FY20e

FY21e

FY20e

FY21e

Adjusted EBITDA, refining

346

181

362

245

387

-26%

-6%

Adjusted EBITDA, petrochemicals

93

63

84

66

90

-5%

-6%

Adjusted EBITDA, marketing

138

93

134

78

135

19%

-1%

Other

(14)

(9)

(8)

(10)

(8)

-10%

0%

Total adjusted EBITDA

570

330

573

379

604

-13%

-5%

Associates

18

22

10

19

10

Adjusted EBIT

339

88

331

136

362

-35%

-9%

Finance costs

(151)

(106)

(107)

(105)

(98)

Adjusted net income

167

59

176

77

206

-23%

-15%

Source: Hellenic Petroleum data, Edison Investment Research

Our updated FY20 EBITDA estimate is currently 8% below consensus, while our FY21 EBITDA estimate is broadly in line with consensus.

Exhibit 6: Edison forecasts versus consensus

€m

Actual

Edison

Consensus

Difference (%)

 

FY19

FY20

FY21

FY20

FY21

FY20

FY21

Adjusted EBITDA, refining

346

181

362

Adjusted EBITDA, petrochemicals

93

63

84

Adjusted EBITDA, marketing

138

93

134

Other

(14)

(9)

(8)

Total adjusted EBITDA

570

330

573

360

570

-8%

0%

Associates

18

22

10

Adjusted EBIT

339

88

331

-72

362

-222%

-9%

Finance costs

(151)

(106)

(107)

Adjusted net income

167

59

176

13

149

349%

18%

Source: Hellenic Petroleum data, Edison Investment Research, Refinitiv consensus estimates as at 18 November 2020

Valuation

We value Hellenic using a blend of discounted cash flow (DCF), leveraged and unleveraged FY21e EV/EBITDA and FY21e P/E multiples, arriving at a valuation of €6.55/share, 4% lower than our last published estimate of €6.81/share, driven by lower earnings estimates for Q420 and FY20. Changes to our forecasts are shown in Exhibit 5 above.

Hellenic trades on FY21e multiples of 9.0x P/E and 7.2x EV/EBITDA compared to the European group averages of 7.5x and 5.3x, respectively. Its free cash flow (FCF) yield is also slightly higher than the peer group average at 13.8% in FY21e and its EV per complexity adjusted barrel is higher than European peers at $1,471/bod. At the same time, the company trades at a discount to US peers on the majority of valuation metrics.

Our DCF valuation is based on discounted cash flows to 2025, using an unchanged 7% cost of capital. We incorporate a terminal value, which assumes the unwinding of working capital and a 1% terminal growth. This results in a DCF valuation of €7.13/share versus our previous estimate of €7.73/share. The reduction in DCF reflects lower refining margins in the second half of 2020 and Q121.

Exhibit 7: Hellenic valuation

Source: Edison Investment Research. Note: Price as at 18 November 2020.

Since the beginning of the year, the market caps of Hellenic and its peers have decreased by an average of c 40%. Concerns about lower global demand for oil and petrochemicals have had a negative impact on global refining systems. Nonetheless, compared to its European peers, Hellenic benefits from a flexible refining system with large storage capacity and proximity to Middle East oil suppliers, taking advantage of crude spreads, especially on increasing freight rates.

Exhibit 8: Share price performance of Hellenic and its peers since January 2020

Source: Edison Investment Research. Note: Prices as at 18 November 2020.

Exhibit 9: Peer group valuation table

Market cap
($m)

EV
($m)

P/E
FY20e
(x)

P/E
FY21e
(x)

EV/EBITDA
FY20e
(x)

EV/EBITDA
FY21e
(x)

FCF yield
FY20e
(%)

FCF yield
FY21e
(%)

P/CF
FY20e
(x)

P/CF
FY21e
(x)

Net debt/
EBITDA FY20e
(x)

Net debt/ EBITDA
FY21e
(x)

Div yield
FY20e
(%)

Refining capacity
(kbod)

EV/bod of complexity adjusted capacity
($/kbod)

Edison estimate – Hellenic

1,795*

4,657*

26.8

9.0

12.5

7.2

-3.2%

13.8%

12.1

3.6

6.4

3.7

9.7%

344

1,471

Europe average

2,340

4,163

4.0

7.5

8.6

5.3

-16.4%

13.7%

0.4

3.6

2.3

1.2

2.1%

385

1,065

Grupa Lotos

1,676

2,315

7.3

5.1

4.1

3.9

11.4%

16.0%

3.0

3.4

1.3

1.3

1.1%

211

1,098

Hellenic Petroleum (consensus)

1,877

4,706

6.1

6.9

10.4

6.9

-6.9%

18.8%

4.0

2.9

4.3

2.9

5.3%

344

1,471

Motor Oil Hellas Corinth Refineries

1,379

2,382

7.8

5.5

5.8

5.1

-18.2%

7.9%

7.8

3.5

1.0

0.9

5.2%

185

1,120

Polski Koncern Naftowy Orlen

5,713

9,256

7.0

5.2

4.5

3.9

-5.0%

3.7%

3.3

2.9

0.3

0.3

0.7%

707

1,424

Saras

611

975

(14.3)

16.5

3.3

4.0

-66.2%

20.0%

(8.0)

1.7

(0.4)

(0.4)

0.0%

300

278

Turkiye Petrol Rafinerileri

2,786

5,345

10.2

6.0

23.3

7.9

-13.3%

15.8%

(7.4)

6.8

7.4

2.5

0.0%

564

997

Americas average

16,381

30,452

362.1

13.0

20.7

9.4

-4.2%

1.1%

19.0

7.5

5.2

2.5

6.5%

1,789

1,403

CVR Energy

1,472

2,708

(27.4)

16.9

22.0

7.5

-6.4%

5.6%

39.6

7.6

4.4

1.5

8.2%

185

1,126

HollyFrontier

3,825

6,017

71.9

8.5

11.1

8.0

0.8%

-10.0%

7.3

7.1

2.9

2.1

5.9%

457

1,053

Marathon Petroleum

26,423

65,743

(37.1)

16.7

17.7

11.0

-6.0%

3.5%

16.0

6.1

7.4

4.6

5.7%

3,021

2,053

Phillips 66

28,104

43,751

18.9

9.8

19.0

9.9

-3.9%

4.0%

14.5

8.4

4.4

2.3

5.6%

2,184

1,821

Valero Energy

22,082

34,041

1,784.2

13.4

33.7

10.8

-5.4%

2.3%

17.7

8.4

7.0

2.3

7.2%

3,100

963

Average

8,145

15,158

155.1

10.0

13.9

7.2

-10.2%

8.4%

9.2

5.2

3.9

2.0

4.5%

967

1,240

Source: Edison Investment Research, Refinitiv. Note: Prices as at 18 November 2020. FX = US$1.13/€.

Exhibit 10: Financial summary

IFRS, year-end: 31 December

€m

 

2017

2018

2019

2020e

2021e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

 

 

7,995

9,769

8,857

6,088

5,977

Cost of sales

 

 

(6,907)

(8,770)

(8,052)

(6,138)

(5,210)

Gross profit

 

 

1,087

999

805

(50)

767

SG&A (expenses)

 

 

(410)

(475)

(470)

(448)

(448)

Other income/(expense)

 

 

(16)

(10)

6

13

11

Exceptionals and adjustments

 

 

18

(19)

2

(556)

0

Reported EBIT

 

 

662

514

341

(490)

331

Finance income/(expense)

 

 

(165)

(146)

(151)

(106)

(107)

Profit (loss) from JVs / associates (post tax)

 

 

31

(2)

18

22

10

Other income (includes exceptionals)

 

 

(8)

2

(1)

11

0

Reported PBT

 

 

520

369

207

(563)

234

Income tax expense (includes exceptionals)

 

 

(136)

(154)

(43)

184

(59)

Reported net income

 

 

384

215

164

(380)

176

Basic average number of shares, m

 

 

306

306

306

306

306

Basic EPS (€)

 

 

1.3

0.7

0.5

(1.2)

0.6

Adjusted EBITDA

 

 

Adjusted EBIT

 

 

833

730

570

330

573

Adjusted PBT

 

 

644

533

339

88

331

Adjusted net income

 

 

502

388

205

15

234

Adjusted EPS (€)

 

 

371

291

167

59

176

DPS (€)

 

 

1.21

0.95

0.55

0.19

0.57

BALANCE SHEET

 

 

0.40

0.75

0.50

0.50

0.50

Property, plant and equipment

 

 

Intangible assets

 

 

Other non-current assets

 

 

3,312

3,269

3,298

3,263

3,241

Total non-current assets

 

 

106

106

104

105

105

Cash and equivalents

 

 

864

529

744

737

745

Inventories

 

 

4,282

3,903

4,146

4,104

4,090

Trade and other receivables

 

 

1,019

1,276

1,088

1,003

514

Other current assets

 

 

1,056

993

1,013

727

828

Total current assets

 

 

791

822

840

696

743

Non-current loans and borrowings

 

 

12

3

6

7

7

Other non-current liabilities

 

 

2,878

3,094

2,947

2,434

2,093

Total non-current liabilities

 

 

920

1,627

1,610

1,133

683

Trade and other payables

 

 

300

420

617

440

440

Current loans and borrowings

 

 

1,220

2,047

2,227

1,572

1,122

Other current liabilities

 

 

1,661

1,349

1,402

1,357

1,429

Total current liabilities

 

 

1,900

1,109

1,022

1,721

1,721

Equity attributable to company

 

 

7

97

115

32

32

Non-controlling interest

 

 

3,568

2,555

2,539

3,110

3,182

CASH FLOW STATEMENT

 

 

2,309

2,331

2,262

1,790

1,813

Profit before tax

 

 

63

64

65

65

65

Depreciation and amortisation

 

 

Other adjustments

 

 

Movements in working capital

 

 

520

369

207

(571)

234

Income taxes paid

 

 

189

197

231

242

242

Cash from operations (CFO)

 

 

207

237

172

116

97

Capex

 

 

(463)

(296)

26

371

(75)

Acquisitions & disposals net

 

 

(10)

(5)

(149)

(27)

(59)

Other investing activities

 

 

443

503

486

131

439

Cash used in investing activities (CFIA)

 

 

(209)

(157)

(241)

(181)

(220)

Net proceeds from issue of shares

 

 

0

(16)

(5)

0

0

Dividends paid in period

 

 

24

311

29

15

7

Movements in debt

 

 

(185)

138

(218)

(166)

(213)

Other financing activities

 

 

0

(1)

0

0

0

Cash from financing activities (CFF)

 

 

(107)

(151)

(155)

(154)

(153)

Increase/(decrease) in cash and equivalents

 

 

(35)

(97)

(111)

227

(450)

Currency translation differences and other

 

 

(149)

4

(160)

(124)

(111)

Cash and equivalents at end of period

 

 

(300)

(244)

(458)

(51)

(714)

Net (debt)/cash

 

 

(42)

397

(189)

(86)

(488)

Source: Hellenic Petroleum, Edison Investment Research


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This report has been commissioned by Hellenic Petroleum and prepared and issued by Edison, in consideration of a fee payable by Hellenic Petroleum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by Hellenic Petroleum and prepared and issued by Edison, in consideration of a fee payable by Hellenic Petroleum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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