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REPSOL: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
EBIT: € -146.0 M (€ 969 M in 1H’19 vs. €-260 M BS(e));
Net Profit: € -258.0 M (€ 497.0 M in 1H'19 vs. € -311.3 M BS(e) and € -275.0 M consensus).
1H'20 vs. 1H'19 Results
EBIT: € 517.0 M (€ 1.99 Bn in 1H’19 vs. € 403 M BS(e));
Net Profit: € 189.0 M (-83.0% vs. -87.8% BS(e) and -84.6% consensus).
The results came in slightly above expectations thanks mainly to Upstream, where we expected adjusted EBIT of €-240 M in 2Q’20 (€-204 M in Net Profit), and the company has released €-165 M (€-141 M in Net Profit). This was due to lower costs, amortisation rates and taxes. On the IFRS level, we also highlight a €-1.28 Bn provision after taxes in Upstream to assume a scenario of lower crude oil and gas prices, which we play down, as it is a non-cash item. REP uses the opportunity to update its resilience plan for 2020: the company raises by € 100 M the expected savings in OPEX in 2020 (to € 450 M/6.3% of EBITDA) and cuts investment by another € 100 M, with an objective to cut € 1.1 Bn (29% vs. 2019). As regards its target of optimising working capital by € 800 M, the company announces that it has captured € 300 M on the quarter. We recall that our estimates only assume the cut to CAPEX. If we included the savings target in OPEX, it would mean +8% in EPS in the medium-term and +6% in our T.P.
The adjusted NFD figure is solid, standing at € 3.99 Bn (-11% vs. 1Q’20) and € 8.02 Bn with leasings (-4% vs. 1Q’20). Note that this figure was aided (as expected) by the recent hybrid bond issuances that do not compute as debt. Good news as well in liquidity, which came in at € 9.76 Bn (vs. € 8.10 Bn in 1Q’20), representing 2.4x short-term gross debt maturities (compared to 1.6x in 1Q’20).
We expect a positive market reaction. REP is lagging behind its sector, which is already lagged. After sliding -34% since the market highs in Febuary’20 (-5% vs. sector) and rallying +33% since March’s lows (-10% vs. sector), REP has only recovered 33% of the correction vs. 45% for its sector and vs. 60% crude oil prices, which should give rise to a better performance from now on. At current levels, the share price is factoring in long-term crude oil prices slightly above REP’s cash break even (US$ 40.00 and around 30.00 if we assume all the measures adopted in CAPEX and working capital savings in 2020). Note that +/- US$ 1.00 means +/-2.3% in T.P. and +/- US$ 0.2 in refining margins +/-2.8%. Conference call at 12:30 (CET). BUY, T.P. € 10.80/sh. (+40.81% upside).