ΕΛΛΗΝΙΚΑ ΠΕΤΡΕΛΑΙΑ – Optima Bank: Εκτιμήσεις για το τρίτο 3μηνο – Διατηρεί την Τιμή Στόχο των 7,0000 ευρώ

Hellenic Petroleum || BUY | CP: EUR 4.18 | TP: EUR 7.00

3Q20 results preview – Results impacted by weak margins, focus on outlook

Facts: ELPE is scheduled to report its 3Q20 results today, after the close of the market, followed by a conference call at 16:00 UK time. Excluding inventory effect and one-offs, we expect “adjusted” EBITDA of EUR 43m (-79% YoY, -32% QoQ) and “adjusted” net losses of EUR 30m from “adjusted” net income of EUR 88.5m in 3Q19 and “adjusted” net losses of EUR 22m in 2Q20. The consensus (Reuters median) calls for “adjusted” EBITDA of EUR 47m and “adjusted” net losses of EUR 30m.

3Q20 & 9M20 Group Key P&L Forecasts

EUR m

3Q19

3Q20e

Y-o-Y change

Q-o-Q

change

9M19

9M20e

Y-o-Y change

IFRS EBITDA

141

       33

      -77%

      -55%

464

-308

nm

“Adjusted” EBITDA*

201

       43

  -79%

-32%

453

       234

-48%

IFRS Net Income

     44.5

-38

       nm

       nm

166

    -374      

nm

“Adjusted” Net Income*

88.5

      -30

       nm

nm

159

-8

nm

Source: Optima Bank, The Company             *excluding inventory effect and one-offs

Below is an analysis per division:

Refining: The negative margin environment combined with weaker USD and reduced sales volume due to the shut-down of Aspropyrgos refinery in September for scheduled maintenance suggest another challenging quarter, mitigated by the partial realization of profits from contango trades established during spring. More specifically, diesel cracks declined further by c.USD 2/bbl from the already low USD 6/bbl in 2Q20 amid excess inventories and slow global economic recovery, while jet fuel cracks remained in negative territory. Gasoline cracks recovered by c.USD 2/bbl QoQ to around USD 4.5/bbl (over USD 6/bbl in September) as gasoline demand improved, but were still USD 6/bbl lower compared to 3Q19.

Finally, fuel oil margins remained at much healthier levels than expected. At the same time, the narrow crude differentials continued, including Basrah which had retained a satisfactory discount until the previous quarter, limiting ELPE’s choices in the optimization process. Overall, we calculate ELPE’s blended margin to have settled at USD 4.5/bbl from USD 6.0/bbl in 2Q20 and USD 10.1/bbl in 3Q19.

The declining USD (the EUR/USD rate stood at 1.17 vs. 1.11 in 3Q19 and 1.10 in 2Q20) added to the weak operating environment. In terms of refinery operations, with the exception of a c.0.4mt loss in Aspropyrgos refinery (we expect the company to have trimmed exports which have a lower margin mitigating the impact on EBITDA) the other two refineries continued to run at high rates.

On a positive note, we assume a gain of EUR 30m from contango trades (we assume a similar amount will be realized in 4Q20). Overall, we calculate refining division “adjusted” EBITDA to have shaped at the low EUR 4m compared to EUR 129m in 3Q19 and EUR 40m in 2Q20. The decline of oil prices in September and lower product prices probably resulted in small inventory loss estimated at EUR 10m (EUR 525m loss in 9M20), resulting in negative IFRS EBITDA of EUR 6m.

Marketing/Petchem: According to Energy Ministry data, in July there was a satisfactory recovery in domestic auto-fuel demand limiting the decline form the same quarter last year (diesel -10%, gasoline -6%), but weak tourism weighed on August demand widening the decline (diesel -13%, gasoline -9%). ELPE resumed its jet fuel activity after almost zero sales in previous quarter, but volume was more than 50% lower from last year. Overall, we expect an improvement from the negative 2Q20, with domestic marketing EBITDA shaping at EUR 13m, representing a 60% YoY decline. Regarding international EBITDA we estimate a 35% YoY decline at EUR 13m. Finally, modest PP margins and impact of Aspropyrgos shut down on PP production are estimated to have reduced petchem EBITDA by 25% YoY at EUR 15m.

Conclusion: Although the weak performance in 3Q20 is broadly in line with our current full year estimates (see our report published on October 7th) and margins recovered modestly in October, the recent surge in covid-19 cases globally and in Greece which inevitably lead to new lockdowns imply a worse than expected outlook for the fourth quarter as well as for the beginning of 2021, suggesting a downside risk to our 2020-2021 estimates. Assuming however that an effective vaccine will be introduced soon and the situation will start normalizing within 1H21, at current market levels ELPE’s valuation is attractive, in our view, even considering the adjustments to our forecasts mentioned above.