Atlantic Equities - Hess (HES) Cash earnings beat but FY18 output guide low

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Atlantic Equities

Barry MacCarthy

Cash earnings beat but FY18 output guide low

Q4 cash earnings of $1.57/share beat consensus/AE at $1.24/$1.16, although output (ex-Libya) of 282kboed was marginally light and unit cash opex was slightly higher than the guided range. Initial FY18 output guidance of 245-255kboed (+3% pro-forma, ex-Libya) is below consensus at 266kboed but assumes a six-month outage at a Shell-operated facility in the Gulf of Mexico, through which Hess oil is transported. Underlying reserves replacement was a robust 351% and a new, $150m cost saving initiative was unveiled.

05/02/2018 3 EN

Underlying

Hess

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Atlantic Equities

Formed in 2003 by an established team from Cazenove, one of the most respected investment banks in the UK, Atlantic Equities conducts and publishes fundamental, bottom up research on mid and large cap US companies.

Atlantic provide order execution through a wide range of DMA products and algorithmic trading suites.

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Analysts

Barry MacCarthy

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Strong output drives good first quarter

HES's initial FY18 output guidance issued in January, of +3% YoY growth, was seen as underwhelming at the time but the Q1 performance indicates management were conservative in their view. Q1 output (ex-Libya) of 233kboed beat guidance of 220-225kboed and, while the FY18 outlook is maintained, investor confidence that guidance can be met/exceeded should be raised. On our raised crude price deck (e.g. WTI $65/bl in 2020) we raise our price target to $60 and retain our Neutral rating. High oil gearing is an upside risk if crude prices continue to firm.

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Model update

This report contains forecasts updated for reported Q218 results. Neither our financial nor PSU estimates are materially changed and we remain Overweight with a 12m PT of $365.

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Cash earnings beat but FY18 output guide low

Energy: Tighter supply supports further crude recovery

A robust performance in Q2

Strong output drives good first quarter

Model update

V/MA: strong core, adjacencies more competitive

Banks: Trading update and 3Q18 preview

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