Hellenic Petroleum: A Refined Mediterranean Player
Edison | Jan 29, 2018 08:39AM ET
Hellenic Petroleum SA (AT:HEPr) owns three refineries (accounting for 65% of total Greek refinery output), while having a substantial marketing and chemicals presence. Although we believe the European refining market to be challenging in the long term, short-term regulation changes (on sulphur in 2020) should support demand for products from complex, middle distillate-focused refineries like Hellenic’s. The cyclical macro environment will likely present challenges but ELPE has a strong balance sheet and should generate free cash flow in the coming years, which may be usefully deployed. We use a mix of 2018e P/E, EV/EBITDA and a longer-term DCF approach to value ELPE at €9.3/share, representing c 9% upside to the current share price.
Established businesses, no more major capex
ELPE’s three refineries provide the bulk of the company’s EBIT (70% since 2012), but are more volatile in earnings than the other two main segments. Marketing provides steady returns from the Southern Mediterranean while its chemical division supplies much of Greek and Mediterranean polypropylene demand. The refineries have gone through major upgrades in the last decade and we do not expect further significant projects in the near term.
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