Hellenic Petroleum: Refining Estimates And Valuation
Edison | Apr 17, 2018 07:41AM ET
Hellenic Petroleum SA (AT:HEPr): A recovery in benchmark margins in February and March 2018 will offer relief to investors after a crude oil rally compressed margins in Q417. In this note, we adjust our forecasts to mark to market for Q118, while reflecting the anticipated positive margin impact of shipping regulatory changes in late 2019 and 2020. Longer term, European refining overcapacity remains a concern with capacity growth exceeding product demand growth – OPEC expects Europe to account for c 51% of projected global refinery closures in the period 2018–2020. ELPE remains well placed to weather the storm, given recent investments enhancing complexity and middle-distillate yield; however, competition from marginal refineries is likely to remain a drag on benchmarks. Our updated blended P/E, EV/EBITDA and DCF valuation stands at €9.0/share, down from €9.3/share. We expect a projected 4.3% dividend yield to provide share price support, with the potential for an increased one-off shareholder return in the event of receipt of DESFA sale proceeds in 2018.
2020 shipping sulphur controls likely to boost margins
Tighter emission controls in the shipping sector effective from January 2020 are likely to provide a boost to complex, distillate-weighted refineries such as ELPE’s Aspropyrgos and Elefsina. Quantifying the margin impact of increased global distillate demand on European benchmarks remains challenging, with analysts forecasting a c $0.5–1.5/bbl improvement. We assume a $0.75/bbl increase in 2020 versus 2018 FCC/hydrocracking benchmarks.
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Hellenic Petroleum: Refining Estimates And Valuation
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