Hellenic Petroleum - IMO 2020 on the horizon
Changes to bunker fuel regulation to be implemented on 1 January 2020 by the International Maritime Organization (IMO) will have major implications for both the refining and shipping sectors. Shipping costs will rise, sour crude discounts will widen, high sulphur fuel oil (HSFO 3.5%) demand will collapse, being replaced by increased demand for ultra-low sulphur fuel oil (ULSFO 0.5%) and marine gasoil (MGO 0.5%). In this note, we outline some of the options shippers and refiners are likely to consider ahead of 2020. We continue to believe that Hellenic (ELPE) is well placed given its high middle distillate yield, above average complexity and crude slate flexibility. Our valuation of €9.22/share (from €8.90/share when we last published) is based on a blend of DCF, EV/EBITDA and P/E multiples. Edison’s FY19 and FY20 financial forecasts include management guidance on the impact of IFRS 16.Hellenic Petroleum operates in the energy sector predominantly in Greece and the Balkans. Co.'s main activities include: refining and marketing of oil products ("R&M"); exploration, development and production, of hydrocarbons ("E&P"); manufacturing and marketing of petrochemical products; and power generation and trading. Refining, supply and trading are Co.'s core business and its main source of income and profit. Retail trading activities are split into domestic, comprising Co.'s Greek subsidiaries EKO and Hellenic Fuels, and International through local in-market retail subsidiary companies. Hydrocarbon exploration and production (E&P) Co. activities relate to Greece and abroad.
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