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HelleniQ Energy | Longer refining path, greener destination

Strong 2024 & catalysts ahead; Buy – The robust results over the past two years along with the increase in the free float following the successful private placement of 11% of the shares in December 2023 have brought HelleniQ Energy in the spotlight in recent months, as manifested in the substantial increase in trading volumes in 2024. As refining margins still hover above mid-cycle levels ytd (c$15/bbl), we anticipate 2024 to be another year of robust profitability, estimating FY’24e group EBITDA at €918m, -26% yoy but 60% higher than 2019 levels. Moreover, we expect sustained interest in HelleniQ in the coming months, in view of a potential second placement and possible corporate activity related to the group’s stakes in Elpedison and DEPA.

Longer path to refining margin normalization… – The refining market remains resilient despite fears for a sharp normalization in 2024, with margins only gradually fading from the ultra-high levels in 2022-23. In fact, with demand remaining strong as consumption trends defy concerns of an economic downturn, margins in 2024 remain above mid-cycle levels. We expect gradual normalization by late 2025 as capacity additions bring the market into equilibrium, thus modelling a retreat in HelleniQ Energy’s refining EBITDA from €679mn in 2024e to c€437mn by 2026e.

Increasing focus on EBITDA diversification through RES expansion – Following a rapid expansion in RES in recent years (shaped by both organic and inorganic initiatives), HelleniQ Energy’s installed capacity now stands at 381MW. In addition, the Group has a clear path towards its 1GW goal by 2025, while its 4.3GW pipeline (out of which 1.8GW with secured grid connection terms) places it well ahead of its 2030 target of 2GW. Mgmt has guided for RES EBITDA of €100mn by 2025 targeting EBITDA of €200mn by 2030, with our numbers penciling in €120m by 2026e (c18% of the mix).

The hidden value in Elpedison & DEPA Commercial – HelleniQ participates in the share capital of Elpedison (50%) and DEPA Commercial (35%), with the former being the 4th largest local electricity supplier (2 CCGTs of 840MW and 6% supply mkt share) and the latter being the leading wholesale and retail natural gas supplier. Recent press reports suggest that HelleniQ is under negotiations with Edison for the control of Elpedison and that the sale of the DEPA stake is imminent. The above corporate actions will likely be interdependent, as HelleniQ’s strategy would justify taking control of either integrated energy firm, aiming to leverage synergies in RES and diversify its profitability profile.

Valuation: Lifting PT to €9.7; Reiterating Buy – Given the more resilient refining environment than we initially anticipated, we raise our FY'24e EBITDA to €918m and FY’25/26e EBITDA to €777/768m (+6%/8% upgrade). These are only partly offset by the one-off effect of the solidarity tax contribution (c€120m). We thus lift our PT to €9.7, effectively placing the stock at 5.6x 1yr fwd EV/EBITDA, aligning with mid-cycle valuation. That said, we see potential for further structural rerating of the stock, driven by ELPE’s expanding exposure in high-multiple segments and mgt’s focus on diversifying profitability, which would enhance the group’s resilience to refining margin volatility.