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REPSOL: 9M'19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
EBIT: € 896.0 M (-14.9% vs. -13.6% expected);
Net Profit: € 497.0 M (-15.5% vs. -13.9% expected and -18.2% expected by the market consensus);

The results came in slightly above our expectations and those of the consensus (€ 522 M of Net Profit vs. 506 BS(e) and 481 consensus) but due to one-off results on the financial level. Excluding this, results would have come in below expectations. We expect a poor market reaction.
By divisions, the results were below expectations in Upstream (€ 218 M Net Profit vs. € 250 M BS(e)). This time, this was not due to exploratory costs (meaning that this weakness has an impact on cash), but to the business’ results themselves. The numbers came in very much in line with expectations in Downstream (€ 372 M of Net Profit vs. € 375 M BS(e)), and above in Corporation (€-68 M vs. €-118 M BS(e)) due to the better results obtained in managing interest and exchange rates.
NFD was very much in line with expectations (€ 3.84 Bn; +5% vs. 2Q’19). Part of this increase was due to treasury stock moves.
Despite the weakness, we wish to point out that, as expected, the refining margin has recovered sharply from summer lows (+57% vs. 2Q’19 to US$ 5.50/barrel, although it is still -18% below 3Q’18), which would be becoming a more solid trend for 4Q’19 and awaiting the entry of IMO regulation (Jan’20). Thus, we can affirm that the trend in 4Q’19 should be positive as regards Downstream (60% Net Profit). The refining margin would have got off to a strong start in 4Q’19 thanks to the strong performance of gasolines and middle distillates vs. Brent and a less adverse competitive environment in Europe. The imminent arrival of the IMO regulation (2020) has meant that tanks are being reconverted in order to raise the proportion of middle distillates. Upstream (40% Net Profit), however, the drop in crude prices has been the expected sore spot, but the division has been even weaker than forecast despite the appreciation of the USD and the increased production (+3% to 712 kboe). There will be a conference call at 12:00 (CET). BUY. T.P. € 19.70/sh. (upside 31.86%).