Hellenic Petroleum — A flexible refiner in a turbulent time

HELLENiQ ENERGY (ASE: ELPE)

Last close As at 22/07/2024

EUR7.62

0.10 (1.33%)

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Research: Energy & Resources

Hellenic Petroleum — A flexible refiner in a turbulent time

Hellenic Petroleum (ELPE) saw a weaker than anticipated Q419 due to the lowest system benchmark margins since Q313. In addition, the Elefsina scheduled turnaround resulted in lower utilisation and sales, although the refinery registered a strong performance post start-up in the same quarter. While Hellenic’s refinery system is well-placed to benefit from IMO 2020, Q120 has been marked by external factors that are affecting global oil supply and demand and disrupting the markets. In this note we update our estimates and valuation to reflect the FY19 results and provisionally, the impact of coronavirus. Hellenic’s high complexity index and high storage capacity allow for flexibility in times of uncertainty. Our updated valuation is down 21% to €7.33/share.

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Energy & Resources

Hellenic Petroleum

A flexible refiner in a turbulent time

FY19 results and outlook

Oil & gas

1 April 2020

Price

€5.20

Market cap

€1,589m

US$1.11/€

Net debt (€m) at 31 December 2019

1,544

Shares in issue

305.6m

Free float

19%

Code

ELPE

Primary exchange

ASE

Secondary exchange

LSE

Share price performance

%

1m

3m

12m

Abs

(15.2)

(39.6)

(38.0)

Rel (local)

9.4

(0.8)

(19.9)

52-week high/low

€9.6

€4.6

Business description

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

Next events

Q120 results

Q220

PV portfolio acquisition close

Q220

Analysts

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

Hellenic Petroleum is a research client of Edison Investment Research Limited

Hellenic Petroleum (ELPE) saw a weaker than anticipated Q419 due to the lowest system benchmark margins since Q313. In addition, the Elefsina scheduled turnaround resulted in lower utilisation and sales, although the refinery registered a strong performance post start-up in the same quarter. While Hellenic’s refinery system is well-placed to benefit from IMO 2020, Q120 has been marked by external factors that are affecting global oil supply and demand and disrupting the markets. In this note we update our estimates and valuation to reflect the FY19 results and provisionally, the impact of coronavirus. Hellenic’s high complexity index and high storage capacity allow for flexibility in times of uncertainty. Our updated valuation is down 21% to €7.33/share.

Year-end

Revenue
(€m)

Adj EBITDA*
(€m)

Net debt
(€m)

P/E
(x)

Dividend yield
(%)

12/18

9,769

730

(1,460)

8.0

14.4**

12/19

8,857

570

(1,544)

9.5

9.6

12/20e

8,895

600

(1,425)

7.4

9.6

12/21e

8,878

691

(1,319)

5.5

9.6

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

Current volatility in oil products demand

2020 is proving to be a challenging year for the oil and gas industry, affecting the upstream and downstream businesses in different ways. In January, geopolitical events around Iran resulted in market instability, later followed by the coronavirus outbreak and the Russia/Saudi Arabia oil price war. These disruptions to the supply/ demand balance are already affecting results in Q120, with the EIA estimating oil demand in Q120 to be 0.9mmbopd lower than in Q119, and inventories expected to rise by 1.7mmbopd. Our revised estimates for ELPE include a 26% decrease in FY20e EBITDA to account for the FY19 results and the reduction in oil demand in Q120 and Q220 due to the coronavirus.

Lower refinery utilisation rate in FY19

The refinery utilisation rate was negatively affected by the end of run performance at Aspropyrgos and Elefsina and the full turnaround at Elefsina in Q419. Therefore, production and sales were equally affected. In 2019, the global refining system observed the lowest benchmark margins for the last five years, as high sulphur fuel oil (HSFO) cracks collapsed ahead of IMO implementation. The actual impact of IMO 2020 is still unclear as markets have been volatile, and stock cargoes of very low sulphur fuel oil (VLSFO) are still available, so cracks have not normalised.

Valuation: Blended valuation at €7.33/share

Our valuation is based on a blend of DCF, EV/EBITDA and P/E valuation approaches. Hellenic currently trades at a premium to European peers at 5.4x FY20e EV/EBITDA versus the sector average of 3.6x, and 7.4x FY20e P/E compared to the European sector average of 5.7x. Our blended valuation falls 21% to €7.33/share (previously €9.30/share) reflecting the current industry headwinds.

Investment summary

High complexity refining system

Hellenic Petroleum operates three refineries in Greece with a total capacity of 344kbd and has sizeable marketing (domestic and international) and petrochemicals divisions. Two of the refineries (Aspropyrgos and Εlefsina) are complex, integrated and provide significant flexibility of feedstocks/throughput. The third, Thessaloniki, is small and simple but houses Hellenic’s petrochemicals units, which have significant Greek and Mediterranean sales, and complements Hellenic’s refining system. In addition to refining and petrochemicals, Hellenic is active in the fuels marketing, power and gas sectors. It is looking to build out its renewable power generation capacity over the course of the next five years, and on 17 February 2020 it announced it has signed a sales and purchase agreement (SPA) for the acquisition of 204MW PV portfolio in Northern Greece.

Blended valuation of €7.33/share

Edison’s valuation of Hellenic is based on a blend of three approaches: DCF, FY20 P/E multiple and FY20 EV/EBITDA multiple. Hellenic trades at an FY20e P/E of 7.4x relative to European peers on 5.7x, and 5.4x FY20e EV/EBITDA relative to the peers on 3.6x. The refining industry has seen a c 40% decline in market value since January 2020 on concerns regarding the impact of coronavirus on global energy demand. According to EIA, global oil liquids consumption has already declined in Q120 from an average of 101.4mmbopd in Q419 to 99.1mmbopd and is currently estimated to pick up only in Q420. The current uncertainty in terms of the magnitude and duration of the impact of coronavirus on the global economy has a direct effect on our blended valuation as it reflects the current market valuation of Hellenic and its peers. We have also reduced our DCF valuation to account for the reported FY19 results and potential impact of coronavirus (see page 9 for details).

Exhibit 1: ELPE valuation

Source: Edison Investment Research. Note: Priced as at 27 March 2020. Numbers represent averages for ranges shown as bars.

FCF generation to support debt reduction and investments

Although we expect the reduction in global oil and gas demand to affect Hellenic’s results in FY20, our revised estimates still suggest that Hellenic will be significantly free cash flow (FCF) generative, with FY20 FCF of €437m and FY21 FCF of €413m. Excess cash generation offers the ability to de-leverage and fund opportunities to maximise margins through the optimisation of existing installed capacity as macro conditions evolve. We also expect the company to invest in renewable activities. These may provide a new area of growth for Hellenic but there are execution risks, particularly if it considers growing by acquisition; in addition, in our view, returns for renewable projects are likely to remain under pressure due to significant competition. Hellenic targets competitive returns on equity from renewable investments and where the company can see potential synergies with the rest of the business.

Risks and sensitivities

The main sources of potential risks are developments in the global economy and their impact on the performance of the European refining industry, including price fluctuations in crude oil and final products as well as the exchange rate of the Euro/US dollar. The outbreak of coronavirus and the efforts to contain it are already affecting the global economy and as a result the demand for oil products and crude oil, as well as the supply of products, particularly from Pacific Asia. These developments might have a negative impact on refining and petrochemical margins at least in Q120 and Q220, although it is difficult to quantify the effect and its duration.

Hellenic’s refining system

Hellenic operates three refineries that together account for 344kbd of capacity and 65% of the Greek refinery output. A composite Nelson complexity index of 9.3 gives an indication of the complex’s flexibility and ability to produce a high percentage of light products from every barrel. The refineries are linked, allowing better integration to best take advantage of their strengths of location, size, storage and complexity.

Hellenic’s refinery complex has a high degree of flexibility; since 2014 it has been able to flex its gasoline yield between 20% and 24%, while middle distillates have been between 50% and 58% of yield (working at full capacity). Fuel oil yields are fairly low (below 5%) and there are no plans to undertake large projects to add further units to the complex at this time. The company has a large storage capacity (41.8mmbbl) and can take advantage of trading opportunities.

Exhibit 2: Summary of Hellenic refineries

Refinery
(Greece)

Daily refinery
capacity (kbd)

Annual refining
capacity (MTm)

Refinery type 

Nelson
complexity index

Aspropyrgos

148

7.5

Cracking (FCC)

9.7

Elefsina

106

5.0

Hydrocracking

12.0

Thessaloniki

90

4.5

Hydroskimming

5.8

Source: Hellenic Petroleum, Edison Investment Research

Hellenic’s low fuel oil yield and complexity should ensure the group is well placed for IMO 2020 and the anticipated switch in demand from HSFO 3.5% to ULSFO 0.5% and MGO 0.5%. Hellenic had minimal changes to crude processing at Elefsina and Thessaloniki ahead of IMO 2020 as neither refinery produces HSFO. However, Aspropyrgos presented an opportunity to reduce high sulphur feed and replaced this with lower sulphur crudes.

Exhibit 3: Hellenic’s refining feedstock and outputs

Source: Hellenic Petroleum

Integrated refineries

Aspropyrgos is the largest refinery in Hellenic’s portfolio and is one of the most modern refineries in Europe (it was built in 1958). Significant upgrades were completed in 1986 (residue conversion project, FCC, mild hydrocracker, visbreaker and CCR units), 1999 (capacity increased to 148kbd) and 2004 (upgrade of conversion units). From 2014, heat and power have been supplied by natural gas (rather than fuel oil), reducing costs and increasing flexibility. The result is a refinery able to produce high levels of gasoline. It is connected to Elefsina via pipeline.

Elefsina is Hellenic’s most complex refinery and has a refining capacity of 106kbd. A €1.4bn upgrade in 2012 added a 39kbd hydrocracker, a 20kbd thermal cracking unit (flexicoker, which gasifies coke for internal heat and power generation and reduces the need to export/sell coke produced elsewhere in the refinery) and a vacuum distillation unit, increasing the Nelson complexity to 12. Its large storage capacity (20.7mmbbl), coastal location and connections (to Aspropyrgos refinery and crude terminals at Pachi and Megara) make it a good trading and logistics hub. The refinery can take heavy, high-sulphur crudes and products. As a result, its middle distillate yield is over 75%.

Thessaloniki is the smallest and simplest refinery (hydroskimming) type and has a storage capacity of 8.8mmbbl. It is the only refinery in Northern Greece (Aspropyrgos and Elefsina make up a southern Greek hub) and supplies both the domestic market and neighbouring countries. A 2011 upgrade renovated distillation units, increased storage capacity and added a 15kbd CCR unit. Thessaloniki also provides feedstock (including residues) to the Southern hub and reforms naphtha from Elefsina (to gasoline).

Hellenic’s refineries are at the smaller end in comparison to European refinery capacities, but we note that the combination of Hellenic’s two more complex refineries (integrated through pipeline connection) would equate to a combined capacity towards the top end of the group. This complexity and integration means that Hellenic’s refining margin compares well to its European listed peers, especially after the Elefsina 2012 upgrades.

Exhibit 4: Hellenic’s refineries are a mix of sizes and complexities

Source: Hellenic Petroleum and peers’ reports and presentations

Lowest margins since Q313 affects Q419 performance

In 2019, the refinery utilisation rate was negatively affected by the end of run performance for the Aspropyrgos and Elefsina refineries and the full turnaround at Elefsina, which was safely completed in Q419. However, as a result, production and sales were equally affected. The refining system observed the lowest benchmark margins since Q313, as HSFO cracks collapsed ahead of IMO implementation. However, due to the current volatility in oil products supply and demand it is difficult to draw conclusions as to the actual impact of IMO 2020 on demand. In 2019, benchmark margins for Mediterranean refineries were significantly weaker. Key drivers were supply/demand balances of products and Urals crude pricing. The Mediterranean benchmark cracking margin averaged US$1.7/bbl in 2019, US$2.9/bbl lower y-o-y and the Mediterranean benchmark hydroskimming margin averaged US$0.3/bbl, reduced by US$3/bbl compared to 2018. In Q419 refining margins were at negative levels on the back of very low fuel oil cracks. We have adjusted our refining margins for Hellenic to reflect the current market conditions (see page 11 for more details).

Exhibit 5: Cracking margins (US$/bbl)

Exhibit 6: Hydroskimming margins (US$/bbl)

Source: Hellenic Petroleum, Edison Investment Research

Source: Hellenic Petroleum, Edison Investment Research

Exhibit 5: Cracking margins (US$/bbl)

Source: Hellenic Petroleum, Edison Investment Research

Exhibit 6: Hydroskimming margins (US$/bbl)

Source: Hellenic Petroleum, Edison Investment Research

The weaker refining environment in 2019 had a negative impact on the company’s 2019 financial performance with adjusted EBITDA of €572m versus €730m in 2018. This was partly offset by an improved trading performance and a stronger US$ vs the euro. As a result of lower capacity availability, production and sales were 8% and 11% lower, respectively.


Coronavirus side effects

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 an impact on global refining systems. Lower demand is already being observed in Q120, especially in China, with oil liquids consumption decreasing from 15.2mmbopd in December 2019 to 13.1mmbopd in February 2020 and is expected in Q220. With falling demand, refiners have seen realised prices decrease, which affected refining margins for the first two months of the year. March saw a pick-up in refining margins as a consequence of low oil prices. However, with falling global demand for oil products, these margins will tend to shrink. The key question now is how long the lower global oil demand will persist and how quickly the global economy will recover. In addition to the coronavirus outbreak the oil price war between Saudi Arabia and Russia broke out on 9 March 2020. The Opec+ ramp-up in production will come just as demand has significantly reduced as a result of the coronavirus. According to press reports, as OPEC members gathered last week, Saudi Arabia was signalling it would cut production to maintain oil prices. However, when Russia decided it was unwilling to accept its proposed share cut of 0.2–0.3mmbopd, Saudi Arabia cut its selling prices, triggering the oil price crash. Lower oil prices tend to be positive for refiners, but with current low margins and rising crude oil inventories no upside is expected until global oil demand picks up. Nonetheless, compared to its European peers, Hellenic benefits from proximity to Middle East oil suppliers, taking advantage of crude spreads, especially on increasing freight rates.

Exhibit 7: Share price performance of Hellenic and its peers since January 2020

Source: Edison Investment Research, Bloomberg as at 11 March 2020

Strategy update and acquisition of 204MW PV portfolio

For 2020, Hellenic’s strategy is to further strength its competitive position within the refining sector, in particular through the optimisation of its operational performance and synergies among the group’s refineries. Hellenic intends to improve the performance of conversion units and the energy efficiency of its refineries, and explore opportunities for operational optimisation in the context of the group’s digital transformation programme. At the same time, the company remains focused on finding high return investment opportunities both within the refining business unit as well as in the renewables space. Hellenic recently announced the acquisition of a 204MW PV project, which is at the final permitting stage, from German developer JUWI. On completion, it will be the largest renewable energy system (RES) plant in Greece. The total estimated investment, including the construction cost, is approximately €130m, and management currently expects a stable annual EBITDA at c €15–17m from 2022. Management announced the transaction is expected to be closed in Q220 with a construction period estimated at c 16 months. However, due to the current disruptions in economic activities and supply chains, some delays might be expected.

In February 2020, Hellenic also reached an agreement with the Hellenic Republic Asset Development Fund (HRADF) for a joint sale process of DEPA Infrastructure and Hellenic’s participation in DEPA Commercial sales process. The existing DEPA Group operates in the wholesale, trading, transmission, distribution and supply of natural gas and is 35% owned by Hellenic whereas the remaining 65% are owned by HRADF.

Free cash flow and capital allocation

Since the beginning of the year global markets have been experiencing increased volatility, which has had a significant effect on the oil and gas and refining industries. Geopolitical events and the outbreak of coronavirus have negatively affected supply/demand and increased earnings uncertainty. Having said that, on our updated estimates that provisionally take into account the depressed market conditions, we expect Hellenic to remain an excess cash and FCF-generating business with a revised FCF forecast of c €437m in FY20 (vs our previous estimate of €528m). We believe Hellenic’s excess cash and FCF will be predominantly used to reduce debt. As such, net debt should continue to fall steadily in the absence of any major investment over and above maintenance capex, with net debt/EBITDA remaining below 3.0x in 2020 and declining to c 1.9x in FY21. Considering the current markets volatility, we expect Hellenic to increase its capital discipline and therefore we do not see additional capex being employed until the global economy stabilises.

Exhibit 8: Hellenic’s net debt and net debt/EBITDA

Source: Edison Investment Research

Other uses of FCF include increasing investment in improving the core business and its growth, and the development of the company’s renewables business. Current guidance is for combined growth capex spend of c €700m over the next five years. Our net debt forecasts, as per Exhibit 8, include this spend, but conservatively we do not include a material margin contribution from renewables given the construction timelines for greenfield renewable projects. Renewable investments are likely to span the wind, solar and biofuel sectors, while margins and returns on investment have the potential to be robust based on renewable peers in Greece. Wind and solar projects in Greece offer the potential for stable, long-term cash flows based on a combination of feed-in tariffs and power purchase agreements. We expect management to provide more details on this aspect of the business in due course. At the time of FY19 results, management expected growth capex alongside competitiveness improvement strategies would provide the basis for the company to generate adjusted EBITDA in excess of €1bn pa (excluding IFRS 16 impacts) from 2025. Our current estimates are more conservative with an FY20e EBITDA of €600m versus our previous estimate of €645m.

Management

Chairman Ioannis Papathanasiou holds a degree in electrical engineering from the National Technical University of Athens. Until 2002, he was chairman and managing director of J.D. Papathanassiou, a company engaged in the trading of technological equipment for buildings.

Ioannis Papathanasiou was first elected as a member of the Greek Parliament in 2000, with the New Democracy party. He was re-elected in 2004, 2007, 2009 and in May 2012 and served in several posts: From 2004 to 2007, was the deputy minister of development for commerce and consumers’ issues, while in 2005 he was also assigned the research and technology issues of the ministry. From 2007 to 2009 he served as the deputy minister of finance and economy for investments and development, and in 2009 he was minister of finance and economy. Ioannis Papathanasiou chaired the board of directors of Hellenic Petroleum between 2014 and 2015.

CEO Andreas Shiamishis holds an economics degree specialising in econometrics from the University of Essex in England and is a fellow (FCA) member of the Institute of Chartered Accountants in England and Wales.

Andreas Shiamishis began his career in 1989 in the banking and financial services practice of KPMG in London. From 1993 to 1998 he worked initially as executive and subsequently as the finance and customer services director in ΜΕΤΑΧΑ, a member of the Diageo International Group of food and beverages. In 1998 he took over as regional finance and business development director, with the responsibility for the areas of the Middle East and North Africa, of Pillsbury (Diageo Group). Between 2000 and 2002 he worked as CFO in a listed company associated with the Leventis Group interests, while in 2003 he was hired as chief financial and IT officer at Petrola Hellas.

After the merger of Petrola Hellas with Hellenic Petroleum in 2004, Andreas Shiamishis took over as CFO of the group and became a member of the group’s executive committee. He was deputy CEO of the group during the period 2014–15 and 2017 to August 2019, when he became the CEO of the group.

Sensitivities

Refining margins: along with all refineries, the major risk to earnings is volatility of refining margins. As a price taker, Hellenic can do little to mitigate this in the short term. In the long term, improvements to refineries are capital intensive and take many years. However, Hellenic will also benefit from increases in refinery margins.

Concentration risk: the bulk of Hellenic’s earnings are generated at the three refineries. Any incident that stops the refineries from operating (such as an unplanned outage) could have a material effect on cash flows. This is mitigated to some extent by the three separate sites and the other material businesses.

Commodity markets: oil price fluctuations have a significant impact on the refining industry. While the recent drop in oil prices and the anticipated increase in oil supply could be positive for the refiners, the reduced demand due to coronavirus is likely to continue to have a negative effect on refining margins in the near term.

Greek risk: Hellenic has significant export businesses and its production is entirely fungible for international markets. Greek country risk is a factor when considering cost of capital and domestic product demand.

Equally, we note that the Greek economy has a lot of potential to grow, and Hellenic Petroleum would be well placed to benefit from increased economic activity through the marketing, power and chemicals divisions. Greek bonds have been on a declining mode in 2019, reaching historic lows, as fundamentals and confidence improved further, with 10-year Greek bonds decreasing at a faster rate than other Eurozone periphery government bond yields. Increased tourism would help the refining and trading segment.

FX rates: refining is a US dollar business (margins are quoted in US dollars) while Hellenic’s costs are predominantly in euros so the lower euro versus the US dollar has benefited earnings (and cushioned the poor refining environment in 2011–14). While we do not forecast currency swings, fluctuating exchange rates will have an impact on earnings.

Valuation

We value Hellenic using a blend of DCF, leveraged and unleveraged multiples arriving at a valuation of €7.33/share, down from our last published estimate of €9.30/share, driven by the reduction in sector multiples and lower estimates on the back of the anticipated reduction in oil products demand in 2020. Changes to our forecasts are shown in Exhibit 16.

Hellenic trades on FY20 multiples of 5.4x EV/EBITDA and 7.4x P/E compared to the European group trading on 3.6x and 5.7x, respectively. Hellenic’s FCF yield is higher than the peers at 27.5% in FY20e and its EV per complexity adjusted barrel is lower than the peers at $1,183/bbld. Our DCF is based on discounted cash flows to 2025, using a 7% cost of capital. We incorporate a terminal value, which assumes the unwinding of working capital and a negative 1% terminal growth. The DCF reflects lower refining margins in the first half of 2020 when compared to 2019 and an anticipated pick-up in the second half of the year as the global economy recovers and the lower oil prices persist.

Exhibit 9: Hellenic valuation

Source: Edison Investment Research, Price as at 27 March 2020

In the current market conditions, Hellenic trades at premium to the peer group on our updated estimates, which are highly sensitive to underlying refining margin and over-performance assumptions. On a complexity adjusted basis, Hellenic trades at a discount despite the flexibility offered by its current refining configuration.

Exhibit 10: EV/EBITDA FY20e and FY21e

Exhibit 11: EV/barrels of complexity adjusted capacity

Source: Edison Investment Research, Bloomberg, Refinitiv estimates, at 27 March 2019. Note: *Edison estimates.

Source: Edison Investment Research, Bloomberg, Refinitiv estimates, at 27 March 2019, company reports/presentations. Note: *Edison estimates.

Exhibit 10: EV/EBITDA FY20e and FY21e

Source: Edison Investment Research, Bloomberg, Refinitiv estimates, at 27 March 2019. Note: *Edison estimates.

Exhibit 11: EV/barrels of complexity adjusted capacity

Source: Edison Investment Research, Bloomberg, Refinitiv estimates, at 27 March 2019, company reports/presentations. Note: *Edison estimates.

Exhibit 12: Peer group valuation table

Source: Edison Investment Research, Refinitiv estimates, Bloomberg. Prices at 27 March 2020.

Financials

An overview of the key changes to our forecasts is provided below. Key impacts include the weak industry environment in Q419 and the fall in demand for oil products in Q120 and Q220 due to the outbreak of coronavirus. As a consequence, we have lowered our refining margin estimates to reflect realised margins in January and February 2020: Aspropyrgos averaged US$2.8/bbl, Thessloniki -US$2.3/bbl and Elefsina US$4.2bbl, resulting in a refining margin implied by benchmarks of c US$2.17bbl versus US$3.74/bbl in our previous estimates. We expect margins to remain at these relatively depressed levels for the next at least six months with the subsequent improvements in Q420 as the global economy recovers from coronavirus and oil prices potentially remain at subdued levels. All in all, our FY20e total EBITDA is 26% lower compared to our previous estimate.

Exhibit 13: Changes to Edison forecasts

€m

Actual

Edison new

Edison old

Difference (%)

 

FY19

FY20e

FY21e

FY19e

FY20e

FY19e

FY20e

Adjusted EBITDA, refining

346

425

484

412

566

-16%

-25%

Adjusted EBITDA, petrochemicals

93

44

77

106

107

-12%

-59%

Adjusted EBITDA, marketing

138

139

138

139

142

-1%

-2%

Other

(14)

(8)

(8)

(7)

(8)

100%

0%

Total adjusted EBITDA

570

600

691

645

806

-12%

-26%

Associates

18

10

10

13

10

Adjusted EBIT

339

366

457

417

560

-19%

-35%

Finance costs

(151)

(91)

(81)

(113)

(84)

Adjusted net income

167

214

290

251

364

-33%

-41%

Source: Hellenic Petroleum data, Edison Investment Research

As our FY20 EBITDA estimate is 15% below consensus, we believe the latter is yet to fully reflect current market conditions. For FY21, our estimates remain in line with consensus as we expect demand to recover and stabilise, and realisations to normalise.

Exhibit 14: Edison forecasts versus consensus

Actual

Edison

Consensus

Difference

 

FY19

FY20e

FY21e

FY20e

FY21e

FY20e

FY21e

Adjusted EBITDA, refining

346

425

484

Adjusted EBITDA, petrochemicals

93

44

77

Adjusted EBITDA, marketing

138

139

138

Other

(14)

(8)

(8)

Total adjusted EBITDA

570

600

691

703

733

-15%

-6%

Associates

18

10

10

Adjusted EBIT

339

366

457

474

490

-23%

-7%

Finance costs

(151)

(91)

(81)

Adjusted net income

167

214

290

329

323

-35%

-10%

Source: Hellenic Petroleum data, Edison Investment Research, Bloomberg, Refinitiv estimates

Exhibit 15: Financial summary

IFRS, Year-end: 31 December

€m

 

2017

2018

2019

2020e

2021e

INCOME STATEMENT

 

 

 

 

 

 

 

Total revenues

 

 

7,995

9,769

8,857

8,895

8,878

Cost of sales

 

 

(6,907)

(8,770)

(8,052)

(8,063)

(7,954)

Gross profit

 

 

1,087

999

805

832

924

SG&A (expenses)

 

 

(410)

(475)

(470)

(474)

(474)

Other income/(expense)

 

 

(16)

(10)

6

8

7

Exceptionals and adjustments

 

 

18

(19)

2

0

0

Reported EBIT

 

 

662

514

341

366

457

Finance income/(expense)

 

 

(165)

(146)

(151)

(91)

(81)

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

 

 

31

(2)

18

10

10

Other income (includes exceptionals)

 

 

(8)

2

(1)

0

0

Reported PBT

 

 

520

369

207

285

386

Income tax expense (includes exceptionals)

 

 

(136)

(154)

(43)

(71)

(97)

Reported net income

 

 

384

215

164

214

290

Basic average number of shares, m

 

 

306

306

306

306

306

Basic EPS (€)

 

 

1.3

0.7

0.5

0.7

0.9

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

833

730

570

600

691

Adjusted EBIT

 

 

644

533

339

366

457

Adjusted PBT

 

 

502

388

205

285

386

Adjusted net income

 

 

371

291

167

214

290

Adjusted EPS (€)

 

 

1.21

0.95

0.55

0.70

0.95

DPS (€)

 

 

0.40

0.75

0.50

0.50

0.50

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

3,312

3,269

3,298

3,254

3,240

Intangible assets

 

 

106

106

104

104

104

Other non-current assets

 

 

864

529

744

752

759

Total non-current assets

 

 

4,282

3,903

4,146

4,110

4,104

Cash and equivalents

 

 

1,019

1,276

1,088

808

463

Inventories

 

 

1,056

993

1,013

922

924

Trade and other receivables

 

 

791

822

840

794

788

Other current assets

 

 

12

3

6

6

6

Total current assets

 

 

2,878

3,094

2,947

2,530

2,181

Non-current loans and borrowings

 

 

920

1,627

1,610

1,210

760

Other non-current liabilities

 

 

300

420

617

617

617

Total non-current liabilities

 

 

1,220

2,047

2,227

1,827

1,377

Trade and other payables

 

 

1,661

1,349

1,402

1,364

1,398

Current loans and borrowings

 

 

1,900

1,109

1,022

1,022

1,022

Other current liabilities

 

 

7

97

115

115

115

Total current liabilities

 

 

3,568

2,555

2,539

2,501

2,535

Equity attributable to company

 

 

2,309

2,331

2,262

2,247

2,307

Non-controlling interest

 

 

63

64

65

65

65

 

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Profit before tax

 

 

520

369

207

285

386

Depreciation and amortisation

 

 

189

197

231

234

234

Other adjustments

 

 

207

237

172

81

71

Movements in working capital

 

 

(463)

(296)

26

98

39

Income taxes paid

 

 

(10)

(5)

(149)

(71)

(97)

Cash from operations (CFO)

 

 

443

503

486

627

633

Capex

 

 

(209)

(157)

(241)

(190)

(220)

Acquisitions & disposals net

 

 

0

(16)

(5)

0

0

Other investing activities

 

 

24

311

29

9

8

Cash used in investing activities (CFIA)

 

 

(185)

138

(218)

(181)

(212)

Net proceeds from issue of shares

 

 

0

(1)

0

0

0

Dividends paid in period

 

 

(107)

(151)

(155)

(229)

(229)

Movements in debt

 

 

(35)

(97)

(111)

(400)

(450)

Other financing activities

 

 

(149)

4

(160)

(98)

(87)

Cash from financing activities (CFF)

 

 

(300)

(244)

(458)

(727)

(766)

Increase/(decrease) in cash and equivalents

 

 

(42)

397

(189)

(280)

(345)

Currency translation differences and other

 

 

(9)

5

2

0

0

Cash and equivalents at end of period

 

 

873

1,275

1,088

808

463

Net (debt)/cash

 

 

(1,802)

(1,460)

(1,544)

(1,425)

(1,319)

Source: Hellenic Petroleum, Edison Investment Research

Contact details

Revenue by geography

8A Chimarras str.,
GR 151 25-Maroussi
Greece
+30 210 63 02 000
www.helpe.gr

Majority Greece, other revenues from the Mediterranean region.

Contact details

8A Chimarras str.,
GR 151 25-Maroussi
Greece
+30 210 63 02 000
www.helpe.gr

Revenue by geography

Majority Greece, other revenues from the Mediterranean region.

Management team

Chairman: Ioannis Papathanasiou

CEO: Andreas Shiamishis

Ioannis holds a degree in electrical engineering from the National Technical University of Athens. Until 2002, was chairman and managing director of J.D. Papathanassiou, a company engaged in the trading of technological equipment for buildings. From 2004 to 2007, he was deputy minister of development for commerce and consumers’ issues for the Greek government, while in 2005 he was also assigned to the research and technology issues of the ministry. From 2007 to 2009 he served as deputy minister of finance and economy for investments and development, and in 2009 he was minister of finance and economy. Ioannis previously chaired the board of directors of Hellenic Petroleum between 2014 and 2015.

Andreas holds an economics degree specialising in econometrics from the University of Essex in England and is a fellow (FCA) member of the Institute of Chartered Accountants in England and Wales. He began his career in 1989 in banking and financial services. Between 2000 and 2002 he was CFO of a listed company associated with the Leventis Group, while in 2003 he was hired as chief financial and IT officer at Petrola Hellas. After the merger of Petrola Hellas with Hellenic Petroleum in 2004, Andreas took over as CFO of the group and joined the group’s executive committee. He was deputy chief executive officer of the group during the periods 2014–15 and 2017 to August 2019, when he became CEO of the group.

Management team

Chairman: Ioannis Papathanasiou

Ioannis holds a degree in electrical engineering from the National Technical University of Athens. Until 2002, was chairman and managing director of J.D. Papathanassiou, a company engaged in the trading of technological equipment for buildings. From 2004 to 2007, he was deputy minister of development for commerce and consumers’ issues for the Greek government, while in 2005 he was also assigned to the research and technology issues of the ministry. From 2007 to 2009 he served as deputy minister of finance and economy for investments and development, and in 2009 he was minister of finance and economy. Ioannis previously chaired the board of directors of Hellenic Petroleum between 2014 and 2015.

CEO: Andreas Shiamishis

Andreas holds an economics degree specialising in econometrics from the University of Essex in England and is a fellow (FCA) member of the Institute of Chartered Accountants in England and Wales. He began his career in 1989 in banking and financial services. Between 2000 and 2002 he was CFO of a listed company associated with the Leventis Group, while in 2003 he was hired as chief financial and IT officer at Petrola Hellas. After the merger of Petrola Hellas with Hellenic Petroleum in 2004, Andreas took over as CFO of the group and joined the group’s executive committee. He was deputy chief executive officer of the group during the periods 2014–15 and 2017 to August 2019, when he became CEO of the group.

Principal shareholders

(%)

Paneuropean Oil & Industrial Holdi

45.47

Hellenic Republic

35.48

Norges Bank

0.86

Vanguard Group Inc/The

0.68

Alpha Asset Management SA

0.57

Mirae Asset Global Investments Co

0.33

Eurobank Ergasias SA

0.30

Companies named in this report

N/A


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.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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.

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

1,185 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

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

1,185 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

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.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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.

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

1,185 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

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

1,185 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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