EUR 850.00 For Business Accounts Only

Morningstar | Repsol Delivers in 2018, Tracking to Hit 2020 Targets

Repsol closed out a strong 2018 by meeting or exceeding much of its guidance on earnings, cash flow, and leverage while making progress on its 2020 objectives. Fourth-quarter adjusted earnings increased to EUR 632 million from EUR 588 million last year, largely from gains in the upstream segment, where adjusted net income increased to EUR 310 million from EUR 145 million on higher oil and gas prices and production volumes. Production increased only 1% year over year for the fourth quarter but 3% for the full year, putting Repsol on track to deliver its targeted 2.6% compound annual growth rate through 2020. Downstream adjusted net income increased to EUR 485 million from EUR 446 million last year thanks to strong trading and gas performance. Full-year EBITDA of EUR 7.6 billion, compared with EUR 6.6 billion the year before, exceeded guidance of EUR 7.0 billion. Repsol targets EUR 8.0 billion of EBITDA in 2019. During the year, Repsol generated operating cash flow of EUR 5.4 billion, sufficient to cover capital spending and shareholder returns. It aims to deliver EUR 6.5 billion in operating cash flow in 2020. Consistent with its prior guidance to increase the dividend to EUR 1 per share in 2020, Repsol raised its dividend to EUR 0.90 from EUR 0.80 and repurchased all shares issued as part of the scrip option. Meanwhile, it reduced net debt to EUR 3.4 billion, exceeding its target, from EUR 6.3 billion last year.

With Repsol on track to reach its previously announced targets, our fair value estimate and moat rating are unchanged, leaving the shares undervalued, in our view. The company is on much more stable footing than it was a few years ago, with a cash flow break-even level approaching $50 a barrel and relatively little debt. While its growth profile is less attractive than other global integrateds, we think the market continues to discount realization of its strategic plan. Continued execution should result in its share price converging with our valuation.

Meanwhile, Repsol remains well positioned for the implementation of IMO 2020, which could provide a tailwind heading into next year.