Today’s Headlines by Optima Bank (05.11.2020)

Today’s Headlines

·      Covid-19 update (PM to address the nation on noon today: press reports argue that he will announce a new nationwide lockdown)

·      Budget Estimates (Government to downward revise budget: press)

·      T-bills (13-week auction results)

·      Mytilineos (3Q/9M results comment)

·      ELPE (3Q/9M results out today post market close)

·      Sarantis (Covid-19 sytartegy comment)

·      MIG (Clarifications over negotiations with CVC Capital on Vivartia stake)

 

Market Comment

Greek equities extended gains for a fourth consecutive session yesterday amid selective interest as investors focused on US elections. Specifically, the General Index rose by 0.64%, with the trading activity retreating to EUR 32m from Tuesday’s EUR 42m. With the exception of Alpha Bank (-1%), banks moved in positive territory led by Piraeus Bank (+4.9%).  Beyond banks, Mytilineos (+2.7%) was in the spotlight on resilient results exceeding estimates, while Aegean Airlines (+4.1%) and OPAP (+2.6%) were also among the main winners. On the flip side, Terna Energy (-3.2%) and Ellaktor (-2.2%) were among the main laggards.

Macro Headlines 

The PM’s office announced yesterday that PM Mitsotakis will hold a televised press briefing today at 12pm (Athens time) about developments over the coronavirus pandemic in the country. Press reports argue that he will announce a second nationwide lockdown as of Friday, as cases of Covid-19 have soared in recent weeks. Note that the National Organization for Public Health (EODY) announced yesterday a record number of new infections, with 2,646 new cases and elevated occupancy rate of beds in intensive care units. 

Reportedly the government will most probably downward revise its budget estimates for both 2020 and 2021, adopting a more conservative stance over the evolution of GDP due to the second wave of the pandemic. Accordingly, revised estimates will most probably call for a double digit drop in this year’s GDP and a lower recovery (to the tune of 3.5- 5%) for 2021, vs. 7.5% in the first draft of the 2021 budget. The revised budget will also call for higher primary deficits in both years, due to the extra cost associated with measures to support the economy and lower revenues linked with the second lockdown.   

The Greek State raised EUR 812.5m yesterday from the issuance of 13-week T-bills. In more detail, the total amount auctioned was EUR 625m, while total bids reached EUR 1,312m (2.10x coverage ratio vs. 2.15x in October) for an interest rate of -0.20% (-4bps from previous auction). PDMA is expected to accept non-competitive bids of EUR 187.5m from primary dealers today, bringing the total amount raised at EUR 1.0bn. 

Company Headlines 

Mytilineos reported in 3Q20 group turnover of EUR 414m (-25.5% YoY, in line with our estimate), EBITDA of EUR 89.4m (+22.5% YoY, +30% above our estimate), and net income of EUR 32.5m (-17% YoY, +11% above our estimate). On a 9M20 basis, the company reported turnover of EUR 1,341m (-13.5% YoY), EBITDA of EUR 234.5m (-5.5% YoY), and net income of EUR 102m (-15.5% YoY).  

 

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.

 

In a response to a letter sent the Hellenic Capital Markets Commission, Sarantis’ management stated that it is confident regarding group’s uninterrupted business continuity given that 90% of the total turnover is generated by the mass market channel. We remind that Sarantis recorded sales of EUR 286.5m (+7.4% y-o-y), EBITDA of EUR 45.5m (+28.6% y-o-y) and EBIT of EUR 36.2m (+33% y-o-y) in 9M20.

 

In a bourse filing, MIG denied press reports arguing that it had reached an agreement with CVC Capital Partners for the sale of its entire stake in Vivartia Holdings to the latter. The exclusive negotiations between the 2 sides will be extended until 30 November, adding that CVC Capital has offered EUR 175-180m for the acquisition of 100% of Vivartia. 

Details on Headlines 

Mytilineos || Under review | CP EUR 9.65

3Q/9M20 trading update | Resilient performance driven by strong Power division

Facts: Mytilineos reported in 3Q20 group turnover of EUR 414m (-25.5% YoY, in line with our estimate), EBITDA of EUR 89.4m (+22.5% YoY, +30% above our estimate), and net income of EUR 32.5m (-17% YoY, +11% above our estimate). On a 9M20 basis, the company reported turnover of EUR 1,341m (-13.5% YoY), EBITDA of EUR 234.5m (-5.5% YoY), and net income of EUR 102m (-15.5% YoY).  

Mytilineos 3Q/9M20 Group P&L results

EUR m

9M19

9M20

Y-o-Y change

3Q19

3Q20

Y-o-Y change

Turnover

1,548

1,341

-13.5%

557

414

-25.6%

EBITDA

248

234.5

-5.4%

73

89.4

+22.5%

EBITDA margin

16%

17.5%

 

13.1%

21.6%

 

Net income

120.6

101.8

-15.6%

39.0

32.5

-16.7%

Source: Optima Bank, The Company    

Below is an analysis per division:

·         Metallurgy: Despite a recovery from the previous quarter, the weaker pricing environment compared to 3Q19 (alumina price index, 3-month LME and billet premia down 9%, 4% and 23% respectively) weighed on performance, mitigated by reduced cash costs driven by lower energy and raw material costs and new cost cutting programme targeting EUR 62m savings by end of 2021 of which EUR 35m recurring (according to the company EUR 18m were realized in 9M20). It is worth noting that the pandemic has not affected sales volume materially. Overall, revenues declined by 20% YoY at EUR 117m, while EBITDA retreated by 25% YoY at EUR 29m. On a 9M20 basis, revenues and EBITDA stood at EUR 365m (-17% YoY) and EUR 104m (-20.5% YoY) respectively.

·         Power & GasDespite lower wholesale prices by c.28% YoY, the combination of CCGT power plants’ high utilization rate (65%) and significantly improved healthy spark spreads driven by lower natural gas prices boosted results from thermal generation, while contribution from RES (222 MW installed capacity), electricity retail (8.5% market share at the end 9M20) and gas trading (38% market share in gas imports in 9M20) added to strong performance. Overall, although revenues were lower by 8% YoY at EUR 221m, EBITDA jumped to EUR 51m from EUR 23m in 3Q19. On a 9M20 basis, revenues and EBITDA stood at EUR 665m (-5% YoY) and EUR 122m (+66.5% YoY) respectively. The construction of the new 826 MW CCGT is on track to be completed in 4Q21.

·         Sustainable engineering solutions (ex-EPC & infrastructure): Traditional EPC activity underperformed for another quarter, as many projects in the backlog have been delayed due to covid-19 disruptions. In this context, turnover retreated by 20% YoY to EUR 40m, while EBITDA settled at EUR 1.7m from EUR 4m in 3           Q19. On a 9M20 basis, revenues fell by 52% YoY to EUR 102m, while EBITDA was marginally negative at 0.3m from EUR 36m in 9M19. This division is currently undergoing a transformation phase looking opportunities at new areas (off-grid solutions, storage, waste management, etc.).

·         RES & Energy Storage Development (Solar PV – Third party EPC & BOT): The shift of the start of new EPC projects in the fourth quarter as a result of the pandemic and the recent conclusion of important projects (including 300 MW in Spain and 170 MW in Chile) led to low activity in 3Q20, with sales declining by 75% YoY to EUR 31m and EBITDA showing a EUR 1.5m loss from EUR 9m gain in 3Q19.  On a 9M20 basis, turnover was higher by 7.5% YoY at EUR 210m, while EBITDA was almost unchanged at 11.5m. Recall that 1H20 results had benefited by the first solar PV sale under the BOT model (a group of operational solar power parks in Northern & Central Greece totalling 47MW were sold for a total consideration of EUR 45.8m).

·        Debt: Group net debt stood at EUR 562m compared to EUR 477m at the end of 1H20 and EUR 421m at the end of 2019. Keep in mind that 3Q20 included the payment of the dividend (c.EUR 50m).

Comment: Overall, 3Q20 results were better than expected driven by the exceptional performance of the Power division and particularly of the thermal generation activity, while the resiliency of the aluminium business due to the low cost model supported results. Despite a recent rise in natural gas prices which may affect margins in the above two divisions in 4Q20, the expected commencement of new solar EPC projects means that the company is on track for annual EBITDA of at least EUR 300m, matching last year’s performance amid a very challenging global environment. Furthermore, the company maintains low leverage (implied 2020 net debt/ EBITDA ratio at c.1.9x) and significant liquidity (EUR 1.2bn cash and credit lines). In this context, we think management’s intention to maintain a dividend of EUR 0.36 is reinforced. We reiterate our positive view for the stock.

 

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. 

Calendar of Events

Macros

05/11/20 | Unemployment Rate AUG

09/11/20 | Industrial Production SEP

10/11/20 | CPI OCT

Results

05/11/20 | ELPE (3Q20)

11/11/20 | CCH (3Q20)

12/11/20 | OTE, Titan Cement (3Q20)

19/11/20 | Eurobank (3Q20)

24/11/20 | Aegean Airlines, Fourlis Holding (3Q20)

25/11/20 | OPAP (3Q20)

26/11/20 | LAMDA Development (3Q20)

30/11/20 | ATHEX Group (3Q20)

 

 

 

 

Research Department
Equity Research

 

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