MOL's clean CCS EBITDA beat expectations in Q4/18 - Instant Earnings Comment from Concorde Securities Ltd. (Hungary)

MOL - Instant Earnings Comment

Recommendation: Accumulate (unch.)

Target price (12-month): 3,440 (unch.)

Current share price: HUF 3,306

 

 

Key points for Q4/18 results:

 

 

MOL posted clean CCS-based EBITDA of HUF 194.1 bn for Q4/18 (-2% QoQ and +28% YoY), ahead 7% and 8% of the consensus estimate and our forecast, respectively. The higher-than expected clean operating results were mainly due to better upstream earnings (incl. extra cash collection in an amount of HUF 4 bn in Egypt) and to a lesser extent positive intersegment transactions, mainly reflecting the impact of oil price movements.

 

Full-year 2018 clean CCS EBITDA reached a record HUF 728 bn (USD 2.69 bn) compared to HUF 672.7 bn (USD 2.45 bn) in 2017.

 

Reported net income attributable to equity holders came in at HUF 78 bn in Q4/18 (-13% QoQ and +2% YoY) also beating analysts’ expectations and our estimate by 67% and 44%, respectively, on the back of higher than expected operating results and lower than expected tax expenses due to deferred tax items.

Full-year 2018 net income was HUF 301 bn (-2% YoY), which suggests that MOL is likely keep rising normal dividend and may pay special dividend as well from its 2018 earnings (POS).

OCF rose 55% YoY on the back of better operating results and a substantial decrease in W/C needs mainly driven by dropping oil prices.

 

Cash CapEx spending were higher 75% YoY mostly driven by downstream investments including transformational capex. With higher CapEx MOL’s FCF was down by 17% YoY to HUF 23 bn (USD 85 mn) in Q4/18. In the 2018, MOL generated FCF of USD 797 mn (-19% YoY) vs. USD 1 bln in 2017.

 

Overall, downstream together with consumer services accounted for 37% of total clean CCS-based EBITDA in Q4/17 (vs. 69% in Q4/16), while upstream and midstream segments represented 49% and 7% of clean CCS-based EBITDA (vs. 38% and 12% in Q4/17), respectively.

 

With positive FCF generation in Q4/18 MOL managed to keep a sound balance sheet leaving considerable financial headroom and liquidity for both organic and inorganic growth opportunities. The company’s simplified net debt/clean CCS-based EBITDA and net gearing ratios stood at 0.41x and 12% at the end of 2018 vs. 0.65x and 18% at the end of 2017.

 

Clean upstream EBITDA rose 65% YoY in Q4/18 to HUF 95.9 bn (vs. cons. est. of HUF 85.7 bn and our est. of HUF 87.7 bn), driven by higher production (+10% YoY from 104kbopd to 114.9kboepd, mostly thanks to increased oil output in Catcher field, UK), an increase of 20% in realized hydrocarbon prices and some non-recurring income (USD 15 mn) cash collection in Egypt.

Downstream clean CCS-based EBITDA remained flat at HUF 68 bn (vs. the cons. est. of HUF 66 bn and our est. of HUF 68 bn) as a combined result of weaker refinery margins (down from USD 5.7/bbl to USD 4.9/bbl YoY), flat throughput and volume sold. Petchem results unexpectedly dropped by 49% YoY to HUF 18 bn to HUF 12 bn despite flat volume sold and better margins, on declining production (-6% YoY in volume terms), presumably higher OpEx FX headwinds.

Consumer Services clean EBITDA advanced by 18% YoY to HUF 24 bn (by and large living up to analysts’ expectations), predominantly on 4% increase in retail fuel consumption and sustained robust growth in non-fuel consumption in the company’s core CEE markets (the share of non-fuel margin rose to a new high of 29% in Q4/18) and continued network optimization (almost a quarter of the network has already been reconstructed).

Midstream clean EBITDA grew 31% YoY to HUF 14 bn (vs. the cons. est. of HUF 17 bn and our est. of HUF 15 bn), as strong volume sold offset adverse tariff changes and rising energy costs.

 

HQs losses were more than expected (HUF -14 bn vs. cons est. of HUF -11 bn).

 

Management gave a conservative EBITDA guidance for 2019 which is expected to remain around USD 2.3 bn vs. analysts’ expectations of USD 2.6 bn, while transformational CAPEX (polyol itself represent ca. USD 0.65 bn) are set to accelerate this year and the next bringing total annual CAPEX to ca. USD 2 bn. As a consequence, simplified FCF can be only ca. USD 0.3 bn in the next two years. This accelerating spending should not push up leverage (LT net debt to EBITDA level target remain below 2x).

 

 

 

Gellert Gaál
Equity analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
Phone:
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MEMBER OF THE CONCORDE GROUP

 

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