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Research: Energy & Resources
Hellenic Petroleum (ELPE) reported that Q120 production was 8% higher than Q119 while adjusted EBITDA increased 4% to €128m. Lower oil prices in the quarter led to improving margins; however, as the COVID-19 pandemic started to affect global demand for oil products, margins began to come under pressure. We expect this pressure will continue for the next three to six months as economies around the world slowly recover and lockdown measures begin to ease. Hellenic’s high complexity index and large storage capacity allow for flexibility in times of uncertainty and given the company’s healthy balance sheet, we expect it to weather this period. Our updated valuation is down 5% to €7.00/share to reflect the current industry headwinds and lower global oil demand.
Written by
Hellenic Petroleum |
Positive Q120 results despite market conditions |
Q120 results |
Oil & gas |
12 June 2020 |
Share price performance
Business description
Next events
Analyst
Hellenic Petroleum is a research client of Edison Investment Research Limited |
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Hellenic Petroleum (ELPE) reported that Q120 production was 8% higher than Q119 while adjusted EBITDA increased 4% to €128m. Lower oil prices in the quarter led to improving margins; however, as the COVID-19 pandemic started to affect global demand for oil products, margins began to come under pressure. We expect this pressure will continue for the next three to six months as economies around the world slowly recover and lockdown measures begin to ease. Hellenic’s high complexity index and large storage capacity allow for flexibility in times of uncertainty and given the company’s healthy balance sheet, we expect it to weather this period. Our updated valuation is down 5% to €7.00/share to reflect the current industry headwinds and lower global oil demand.
Year-end |
Revenue |
Adjusted EBITDA* (€m) |
Net debt |
P/E |
Dividend yield |
12/18 |
9,769 |
730 |
1,460 |
8.0 |
11.6** |
12/19 |
8,857 |
570 |
1,544 |
11.8 |
7.7 |
12/20e |
8,318 |
484 |
1,984 |
14.6 |
7.7 |
12/21e |
8,393 |
608 |
1,917 |
9.6 |
7.7 |
Note: *Adjusted numbers account for inventory movements and other one-off items. **Includes special dividend from DESFA proceeds.
Lower oil prices benefited Q120 benchmark margins
Hellenic reported positive results in Q120 despite current market conditions. The company benefited from lower oil prices from late January to mid-March. However, the impact of COVID-19 on oil products demand has only become visible in the second half of March. Q120 production was 8% higher than Q119 and adjusted EBITDA increased 4% to €128m. We expect margins to remain under pressure in Q220 and Q320, as lockdown measures are slowly easing but are still in place in several European countries, especially when comparing benchmark margins to corresponding periods in 2019 that observed a strong tourist season.
Aspropyrgos refinery turnaround planned for H220
The increase in the availability of the Elefsina and Thessaloniki refineries resulted in higher refining system production. The system now operates with a more diverse crude slate and Aspropyrgos operates under an IMO model, with the high sulphur fuel oil yield dropping to 4% in the quarter. The Aspropyrgos turnaround is still planned for September 2020; however, the company is reviewing its business plans. Hellenic estimates that the Kozani 204MW photovoltaic project transaction will be closed in Q420 and is targeting commercial operations to start in Q122.
Valuation: Blended valuation at €7.00/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 6.9x FY21e EV/EBITDA, versus the sector average of 4.3x, and 9.6x FY21e P/E compared to the European sector average of 8.2x. Our blended valuation falls 5% to €7.00/share (previously €7.33/share) reflecting the expected lower demand for oil products in the next three to six months and lower realised margins.
Positive results due to improved performance
Hellenic reported positive results in Q120 against the backdrop of lower global oil prices. However, the impact of COVID-19 on oil products demand was only observed in the last 15 to 20 days of the quarter. Production was 8% higher than in Q119 with exports absorbing the additional output. This resulted in an improved reported adjusted EBITDA of €128m (reported EBITDA loss of €416m adjusted for inventory revaluation and other non-operating items), 4% higher than the corresponding quarter of 2019, with reported adjusted net income of €44m, 18% higher than Q119. The IFRS net loss of €341m was affected by €540m of inventory revaluation losses due to the decrease in oil prices. The company reported net debt of €1.91bn compared to net debt of €1.5bn at end FY19.
COVID-19 led to a significant slowdown in economic activity with the EIA estimating global demand for liquid fuels dropping by c 20% in Q220 versus Q419; the oil producers’ response of cutting c 10mmbod since early April 2020 was not enough to ease pressure on oil markets. OPEC and allied nations recently extended the oil output cut until the end of July 2020. Fixed and floating storage capacity stretched to cover supply surplus with excess supply putting pressure on margins and eventually leading to refinery closures in Q220. Hellenic’s domestic marketing activity has been affected by Greece’s lockdown, in place since 23 March 2020, with domestic market demand down 4% for fuels and 18% for aviation and bunker fuel in Q120. The Greek auto-fuels market was down c 40% during the lockdown period with the main impact on the market expected to be observed in Q220. There has been a gradual lifting of restrictions since 4 May 2020 and the company has seen a partial recovery in the market.
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Exhibit 1: Domestic market fuel demand (MT 000s) |
Exhibit 2: Aviation and bunkers fuel demand (MT 000s) |
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Source: Hellenic Petroleum. Note: MOGAS = motor gasoline, HGO, HGO = heating gasoil. |
Source: Hellenic Petroleum |
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Exhibit 1: Domestic market fuel demand (MT 000s) |
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Source: Hellenic Petroleum. Note: MOGAS = motor gasoline, HGO, HGO = heating gasoil. |
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Exhibit 2: Aviation and bunkers fuel demand (MT 000s) |
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Source: Hellenic Petroleum |
The Aspropyrgos refinery turnaround is still planned for September 2020; however, Hellenic is reviewing its business plans to make sure it can adapt where necessary in the short and medium term in response to current market conditions.
Elefsina: Higher utilisation post successful Q419 turnaround
Hellenic’s Q120 production was mostly driven by the increased availability of the Elefsina and Thessaloniki refineries where the company did not have maintenance issues as was the case in Q119. The refining system is now operating with a more diverse crude slate, with new crudes such as Azeri, Algerian and US crudes accounting for more than 20% of the mix. Also, the high sulphur fuel oil yield dropped to 4% as a result of the new International Maritime Organisation (IMO) compliant operating model at Aspropyrgos. Hellenic has the capacity to adjust the batch-run operation at the refinery in accordance with market conditions reflecting the refinery’s flexibility.
Renewables strategy to improve carbon footprint
Hellenic reiterated that renewables are a key pillar in the company’s strategy for improving its carbon footprint and meeting the announced footprint reduction target of 50% by 2030. Management is keen on the earnings stability of the business and its low market risk and diversification from Hellenic’s core business.
Some COVID-19-related delays are expected to the development of the Kozani 204MW photovoltaic project. Management expects the transaction will be closed in Q420 and is targeting commercial operations to start in Q122. In the meantime, management is in the process of selecting the optimal technical solutions and project configuration for the development and is working on finalising the permitting process.
Financials
Key changes to our financial estimates and market expectations include weaker global demand for oil products during the year, due to COVID-19, despite a relatively strong Q120. As a consequence, we have lowered our refining margin estimates to reflect benchmark margins in April and May 2020: Aspropyrgos benchmark margins averaged $4.5/bbl in April and -$1.1/bbl in May (versus $5.8/bbl in March), Thessaloniki averaged $5.5/bbl in April and -$1.8/bbl in May (versus $4.7/bbl in March) and Elefsina averaged $4.4bbl in April and -$1.6/bbl in May (versus $7.2/bbl in March). We expect margins to remain under pressure for at least the next three to six months with subsequent improvements in Q420 as the global economy recovers from the coronavirus and oil prices potentially remain at relatively subdued levels. All in all, our FY20e total EBITDA is 19% lower compared to our previous estimate.
Exhibit 3: Changes to Edison forecasts
€m |
Actual |
Edison new |
Edison old |
Difference (%) |
|||
FY19 |
FY20e |
FY21e |
FY20e |
FY21e |
FY20e |
FY21e |
|
Adjusted EBITDA, refining |
346 |
299 |
398 |
425 |
484 |
-30% |
-18% |
Adjusted EBITDA, petrochemicals |
93 |
69 |
80 |
44 |
77 |
57% |
4% |
Adjusted EBITDA, marketing |
138 |
128 |
138 |
139 |
138 |
-8% |
0% |
Other |
(14) |
(10) |
(8) |
(8) |
(8) |
25% |
0% |
Total adjusted EBITDA |
570 |
484 |
608 |
600 |
691 |
-19% |
-12% |
Associates |
18 |
46 |
10 |
10 |
10 |
||
Adjusted EBIT |
339 |
238 |
362 |
366 |
457 |
-35% |
-21% |
Finance costs |
(151) |
(105) |
(97) |
(91) |
(81) |
||
Adjusted net income |
167 |
136 |
206 |
214 |
290 |
-37% |
-29% |
Source: Hellenic Petroleum data, Edison Investment Research
Our FY20 EBITDA estimate is 1% ahead of consensus and our FY21 EBITDA estimate is 5% below consensus. At the same time, our FY20 net income estimate is somewhat below consensus.
Exhibit 4: Edison forecasts versus consensus
€m |
Actual |
Edison |
Consensus |
Difference (%) |
|||
FY19 |
FY20e |
FY21e |
FY20e |
FY21e |
FY20e |
FY21e |
|
Adjusted EBITDA, refining |
346 |
299 |
398 |
||||
Adjusted EBITDA, petrochemicals |
93 |
69 |
80 |
||||
Adjusted EBITDA, marketing |
138 |
128 |
138 |
||||
Other |
(14) |
(10) |
(8) |
||||
Total adjusted EBITDA |
570 |
484 |
608 |
480 |
641 |
1% |
-5% |
Associates |
18 |
46 |
10 |
||||
Adjusted EBIT |
339 |
238 |
362 |
240 |
404 |
-1% |
-10% |
Finance costs |
(151) |
(105) |
(97) |
||||
Adjusted net income |
167 |
136 |
206 |
210 |
236 |
-35% |
-13% |
Source: Hellenic Petroleum data, Edison Investment Research, Bloomberg, Refinitiv estimates as at 9 June 2020
Valuation
We value Hellenic using a blend of DCF, leveraged and unleveraged EV/EBITDA and P/E multiples arriving at a valuation of €7.00/share, down from our last published estimate of €7.33/share, driven by lower earnings estimates on the back of the anticipated reduction in oil products demand in 2020. Changes to our forecasts are shown in Exhibit 3 above.
Our peer-based valuation of Hellenic is now based on FY21 multiples instead of FY20. As can be seen in Exhibit 6, due to the near-term market and commodity price volatility as well as the increased uncertainty in earnings estimates for FY20, peers’ multiples exhibit high deviations from mean levels. FY21 should see a gradual normalisation in fundamentals and improved visibility both in terms of commodity pricing and earnings estimates. Hellenic trades on FY21e multiples of 6.9x EV/EBITDA and 9.6x P/E compared to the European group averages of 4.3x and 8.2x, respectively. Hellenic’s FCF yield is higher than the peer group average at 19.7% in FY21e and its EV per complexity adjusted barrel is lower than the peers at $1,183/bbld. The company trades at a discount to the 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 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 lower oil prices persist. This results in a DCF valuation of €8.02/share versus our previous valuation of €9.40/share.
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Exhibit 5: Hellenic valuation |
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Source: Edison Investment Research. Note: Price as at 9 June 2020. |
Exhibit 6: Peer group valuation table
Market cap |
EV |
P/E FY20e |
P/E FY21e |
EV/EBITDA FY20e |
EV/EBITDA FY21e |
FCF yield FY20e |
FCF yield FY21e |
P/CF FY20e |
P/CF FY21e |
Net debt/ |
Dividend yield FY20e |
Refining capacity |
EV/bbld of complexity |
|
Hellenic Petroleum (Edison estimates) |
2,188* |
4,666* |
14.6 |
9.6 |
8.7 |
6.9 |
-1.6% |
19.7% |
18.2 |
3.2 |
4.1 |
7.7% |
344 |
1,183 |
Europe |
3,159 |
4,557 |
49.6 |
8.2 |
6.8 |
4.3 |
-6.2% |
10.1% |
7.2 |
3.8 |
1.6 |
5.0% |
385 |
940 |
Grupa Lotos |
3,054 |
3,846 |
131.1 |
8.8 |
10.3 |
4.7 |
9.9% |
10.8% |
6.7 |
5.5 |
2.0 |
2.8% |
211 |
1,500 |
Hellenic Petroleum (consensus estimates) |
2,250 |
4,631 |
13.3 |
6.6 |
7.8 |
5.8 |
-5.0% |
17.9% |
5.9 |
5.3 |
3.6 |
5.4% |
344 |
1,183 |
Motor Oil Hellas Corinth Refineries |
1,875 |
2,881 |
15.2 |
7.9 |
6.3 |
4.3 |
-0.2% |
7.0% |
1.9 |
1.8 |
1.1 |
6.2% |
185 |
834 |
Polski Koncern Naftowy ORLEN |
7,600 |
9,587 |
10.4 |
6.4 |
4.1 |
3.4 |
-11.3% |
0.3% |
4.6 |
3.6 |
0.7 |
2.7% |
707 |
1,094 |
Saras |
908 |
1,262 |
49.4 |
11.4 |
3.1 |
2.4 |
-25.7% |
16.1% |
15.0 |
2.9 |
(0.2) |
5.1% |
300 |
210 |
Tupras Turkiye Petrol Rafinerileri |
3,265 |
5,137 |
78.3 |
8.1 |
9.1 |
5.1 |
-4.8% |
8.8% |
9.0 |
3.6 |
2.5 |
8.1% |
564 |
819 |
US |
24,032 |
40,999 |
(18.7) |
16.6 |
14.6 |
6.9 |
0.0% |
10.4% |
15.1 |
6.2 |
4.0 |
5.9% |
2,123 |
1,260 |
CVR Energy |
2,447 |
3,641 |
(38.0) |
15.7 |
12.4 |
5.5 |
1.3% |
18.2% |
19.8 |
5.8 |
2.5 |
8.2% |
185 |
1,030 |
Marathon Petroleum |
26,336 |
66,942 |
(19.9) |
18.2 |
10.7 |
6.6 |
-0.1% |
12.1% |
9.3 |
4.2 |
5.7 |
5.7% |
3,021 |
1,695 |
Phillips 66 |
37,711 |
51,720 |
38.3 |
13.7 |
15.5 |
7.9 |
-0.7% |
5.2% |
12.5 |
7.6 |
3.6 |
4.2% |
2,184 |
1,531 |
Valero Energy |
29,636 |
41,694 |
(55.2) |
18.7 |
19.9 |
7.5 |
-0.5% |
6.0% |
18.9 |
7.2 |
4.4 |
5.4% |
3,100 |
783 |
Average |
10,661 |
17,819 |
21.6 |
11.4 |
9.8 |
5.5 |
-3.5% |
11.1% |
11.1 |
4.6 |
2.7 |
5.6% |
1,013 |
1,078 |
Source: Edison Investment Research, Bloomberg, Refinitiv estimates. Note: Prices at 9 June 2020. *FX = US$1.11/€.
Exhibit 7: Financial summary
IFRS, year-end 31 December |
€m |
|
2017 |
2018 |
2019 |
2020e |
2021e |
INCOME STATEMENT |
|
|
|
|
|
|
|
Total revenues |
|
|
7,995 |
9,769 |
8,857 |
8,318 |
8,393 |
Cost of sales |
|
|
(6,907) |
(8,770) |
(8,052) |
(8,167) |
(7,574) |
Gross profit |
|
|
1,087 |
999 |
805 |
151 |
819 |
SG&A (expenses) |
|
|
(410) |
(475) |
(470) |
(469) |
(470) |
Other income/(expense) |
|
|
(16) |
(10) |
6 |
14 |
13 |
Exceptionals and adjustments |
|
|
18 |
(19) |
2 |
(540) |
0 |
Reported EBIT |
|
|
662 |
514 |
341 |
(306) |
362 |
Finance income/(expense) |
|
|
(165) |
(146) |
(151) |
(105) |
(97) |
Profit (loss) from JVs / associates (post tax) |
|
|
31 |
(2) |
18 |
46 |
10 |
Other income (includes exceptionals) |
|
|
(8) |
2 |
(1) |
2 |
0 |
Reported PBT |
|
|
520 |
369 |
207 |
(363) |
275 |
Income tax expense (includes exceptionals) |
|
|
(136) |
(154) |
(43) |
96 |
(69) |
Reported net income |
|
|
384 |
215 |
164 |
(267) |
206 |
Basic average number of shares, m |
|
|
306 |
306 |
306 |
306 |
306 |
Basic EPS (€) |
|
|
1.3 |
0.7 |
0.5 |
(0.9) |
0.7 |
|
|
|
|||||
Adjusted EBITDA |
|
|
833 |
730 |
570 |
484 |
608 |
Adjusted EBIT |
|
|
644 |
533 |
339 |
238 |
362 |
Adjusted PBT |
|
|
502 |
388 |
205 |
181 |
275 |
Adjusted net income |
|
|
371 |
291 |
167 |
136 |
206 |
Adjusted EPS (€) |
|
|
1.21 |
0.95 |
0.55 |
0.44 |
0.67 |
DPS (€) |
|
|
0.40 |
0.75 |
0.50 |
0.50 |
0.50 |
BALANCE SHEET |
|
|
|||||
Property, plant and equipment |
|
|
3,312 |
3,269 |
3,298 |
3,201 |
3,175 |
Intangible assets |
|
|
106 |
106 |
104 |
105 |
105 |
Other non-current assets |
|
|
864 |
529 |
744 |
778 |
785 |
Total non-current assets |
|
|
4,282 |
3,903 |
4,146 |
4,083 |
4,065 |
Cash and equivalents |
|
|
1,019 |
1,276 |
1,088 |
594 |
211 |
Inventories |
|
|
1,056 |
993 |
1,013 |
680 |
889 |
Trade and other receivables |
|
|
791 |
822 |
840 |
739 |
771 |
Other current assets |
|
|
12 |
3 |
6 |
2 |
2 |
Total current assets |
|
|
2,878 |
3,094 |
2,947 |
2,015 |
1,873 |
Non-current loans and borrowings |
|
|
920 |
1,627 |
1,610 |
1,081 |
631 |
Other non-current liabilities |
|
|
300 |
420 |
617 |
492 |
492 |
Total non-current liabilities |
|
|
1,220 |
2,047 |
2,227 |
1,573 |
1,123 |
Trade and other payables |
|
|
1,661 |
1,349 |
1,402 |
1,160 |
1,472 |
Current loans and borrowings |
|
|
1,900 |
1,109 |
1,022 |
1,497 |
1,497 |
Other current liabilities |
|
|
7 |
97 |
115 |
67 |
67 |
Total current liabilities |
|
|
3,568 |
2,555 |
2,539 |
2,724 |
3,037 |
Equity attributable to company |
|
|
2,309 |
2,331 |
2,262 |
1,737 |
1,714 |
Non-controlling interest |
|
|
63 |
64 |
65 |
64 |
64 |
CASH FLOW STATEMENT |
|
|
|||||
Profit before tax |
|
|
520 |
369 |
207 |
(366) |
275 |
Depreciation and amortisation |
|
|
189 |
197 |
231 |
246 |
246 |
Other adjustments |
|
|
207 |
237 |
172 |
72 |
87 |
Movements in working capital |
|
|
(463) |
(296) |
26 |
183 |
72 |
Income taxes paid |
|
|
(10) |
(5) |
(149) |
(27) |
(69) |
Cash from operations (CFO) |
|
|
443 |
503 |
486 |
109 |
611 |
Capex |
|
|
(209) |
(157) |
(241) |
(141) |
(220) |
Acquisitions & disposals net |
|
|
0 |
(16) |
(5) |
1 |
0 |
Other investing activities |
|
|
24 |
311 |
29 |
6 |
5 |
Cash used in investing activities (CFIA) |
|
|
(185) |
138 |
(218) |
(134) |
(215) |
Net proceeds from issue of shares |
|
|
0 |
(1) |
0 |
0 |
0 |
Dividends paid in period |
|
|
(107) |
(151) |
(155) |
(305) |
(229) |
Movements in debt |
|
|
(35) |
(97) |
(111) |
(60) |
(450) |
Other financing activities |
|
|
(149) |
4 |
(160) |
(110) |
(100) |
Cash from financing activities (CFF) |
|
|
(300) |
(244) |
(458) |
(476) |
(779) |
Increase/(decrease) in cash and equivalents |
|
|
(42) |
397 |
(189) |
(501) |
(383) |
Currency translation differences and other |
|
|
(9) |
5 |
2 |
7 |
0 |
Cash and equivalents at end of period |
|
|
873 |
1,275 |
1,088 |
594 |
211 |
Net (debt)/cash |
|
|
(1,802) |
(1,460) |
(1,544) |
(1,984) |
(1,917) |
Source: Hellenic Petroleum, Edison Investment Research
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Research: Industrials
FY19 was a year of significant change for Daldrup & Söhne (D&S), marked by the disposal of Geysir Europe. With a strengthened balance sheet, a renewed focus on its drilling activities, a healthy order book and further improvements to internal control mechanisms targeted, the management board (and consensus forecasts) expect an improvement in profitability in FY20.