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Motor Oil Hellas | Refine, Diversify, Overcome

Thesis intact, “windfall profits” tax just a mild temporary setback – In line with the pattern observed since 2022, refining margins continue to eclipse expectations, staying well above mid-cycle levels (H1’24 c$12/bbl vs mid-cycle $6-8/bbl), with MOH on track to report FY’24e EBITDA near €1bn (-36% yoy but >100% vs 2019). Since 2022, MOH’s strong FCF has been deployed in shareholder returns (>7.5% yield), scaling-up of RES, other value-accretive projects and improvement of the leverage profile. Nonetheless, the share price has stalled since early 2023, as investors focus more on the eventual – and to an extent inevitable – refining margin normalization. More recently, weighing on sentiment has been the imposition of a “windfall profits” tax for a 2nd time (EEe c€180m), a temporary setback that certainly does not derail the investment thesis.

Value-accretive capex facilitates sustainable 2-digit returns in refining… – Since late 2022 MOH has reinforced its refinery by introducing a Naphtha reformer (>€150m EBITDA in FY’23, >42% ROIC) and upgrading its crude refining capacity by 8% (to 200kbpd). As refining margins trend down towards mid-cycle levels, the impact of both projects will become even more pronounced. Looking ahead, MOH’s >€4bn capex plan until 2030 allocates >€1.5bn for refining projects aimed at enhancing efficiency & flexibility, with a ROIC threshold of 20%.

High-quality RES portfolio, on track to reach >2GW by 2030 – Motor Oil’s expansion in RES has been rapid since 2021, with the acquisition of “Anemos” making MORE one of the largest local RES operators. The quality of MORE’s 839MW operating projects is particularly noteworthy, given the long-term FiT/FiP contracts along with high-offtake prices averaging €92/MWh. Additionally, the portfolio’s tilt towards wind energy (94% of total) constitutes a significant advantage amid more frequent RES curtailments caused by PV oversupply. MORE also holds a maturing pipeline with a clear path to its >2GW 2030 target leading to the doubling of segmental EBITDA to >€250mn by then.

Diversification unlocks long-term growth potential – MOH’s focus on diversification extends beyond RES, with the Group’s electricity supplier NRG holding a mkt share of 5.5%. Additionally, MOH is being transformed into a vertically integrated player through a 50/50 JV related to the new 877MW CCGT set to start commercial operations by the end of 2024. Beyond electricity, MOH has recently expanded into waste mgt & alt fuels, aiming to raise the EBITDA contribution of non-fossil fuel activities to >40% by 2030.

Valuation: raising PT to €30.0; RES business mis-valued by the market – Incorporating more resilient refining margins, we raise our FY24/25e EBITDA by +16%/+13%, with the “windfall profits” tax (19% of 2024e EBITDA) eclipsed by the uplift to underlying numbers. Although the key swing factor to our valuation remains the refining business (1$/bbl refining margin swing = c€95m EBITDA), we argue that market participants mis-value MOH’s RES segment, attaching limited profit growth to this operation disregarding the quality of the portfolio (long-term FiT/FiP contracts). At our PT, MOH would trade at c5.6x 2025e EV/EBITDA, broadly in sync with the mid-cycle valuation.