Lotos confirmed at BUY, TP PLN 75.0 - Impact of refinery upgrade becoming visible and supportive
We set our new 12m target price at PLN 75.0 (PLN 108 prev.), which implies a more than 25% upside potential and warrants a BUY rating for Lotos. The operational results of the Refining segment for the month of April are clearly showing the competitive advantages of having a complex and flexible refinery, which allows to quickly adapt to fast-changing market conditions. Thus, Lotos was not only able to gradually improve its refining slate in April (middle distillates yield at 59% vs. 54% in 2019 and white products yield at 83% vs. 74% in 2019), but also to adjust its output towards higher-margin products (i.e. more diesel and less jet fuel). Although the company is still not reporting its upgraded model refining margin, the management hinted that the refinerys upgrade is contributing with at least USD 2.0/bbl, which is in line with previous guidance.Grupa Lotos is an oil concern which deals with oil extraction and processing and trading of high quality oil products. Co. supplies the market with, unleaded petrol, diesel oil, fuel oil, aviation fuel, industrial oil, asphalt and paraffin, among other things. Co. is engaged in the production and sales of engine oils and bitumen in Poland. Co. maintains oil exploration and production activities in the Baltic, North Sea and Norwegian Sea and operates three refineries in Gdansk, Jaslo and Czechowice, Poland. Co. markets its products in wholesale markets, as well as in retail markets through a network of petrol stations.
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