EMEA Refining: A great or Greta future? (MOH and PKN stay BUY, LTS and ELPE stay HOLD, TUPRS upgraded to HOLD, MOL downgraded to HOLD)
The refining sector spent much of 2020 in intensive care, with record-low refining margins, demand slumps, inventory losses and dividend cancellations. True, the sector had a pre-existing condition, excess capacity, emerging technologies and carbon costs are all threats. Can the sector survive and even thrive again, or will the symptoms continue long after the event? In this report, we take a look at the long-term trends affecting the industry, as well as the chances of recovery. We conclude that, although the challenges are real, there is still plenty of life in the sector, if you know where to look. Refiners are diversifying, moving up the value chain, shifting to petrochemicals, emphasising retail, adding alternative fuels, and promising attractive dividend payouts to keep the show on the road. In the short term, we like exposure to refining margins, where the recovery opportunities are the greatest, but a refinery+ model holds the most sustainable way forward in the longer term, in our view. We view Motor Oil Hellas (BUY, 12M price target (PT) EUR 17.0, 32.0% upside) and PKN Orlen (BUY, 12M PT PLN 92.4, 39.0% upside) as the best value; Tupras (HOLD, PT TRY 93.8, 7.8% upside) ticks many boxes, but involves TRY risk; while MOL (HOLD, 12M PT HUF 2,224, 5.3% upside) loses on governance worries, and Lotos (HOLD, PT PLN 50.1, 6.3% upside) on deal issues; and, at Hellenic Petroleum (HOLD, PT EUR 6.02, 3.0% upside), the high leverage is slow to drop.Autohellas is a Hertz national franchisee. Co. is engaged in the rent-a-car segment, comprising of renting (short-term lease) and fleet management (long-term lease and fleet management) in Greece, Bulgaria, Cyprus, Romania, Serbia and Montenegro. Renting covers the needs of both individuals and companies for occasional, small duration rentals up to 1 year long.
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.
Polski Koncern Naftowy Orlen's activities are divided into three main business segments: the Refining Segment that comprises crude oil processing as well as wholesale and retail trade in refinery products. The Petrochemical Segment that encompasses production and sale of petrochemicals and chemicals. The Retail Segment that comprises of sales at petrol stations. Co.'s basic products include gasolines, diesel oils, light heating oil, Jet fuel, liquid gas, polyetylene, polypropylene, benzene, butadiene, acetone, phenol, glycols, toluen, ortoxylene.
Turkiye Petrol Rafinerileri is an energy and refining company based in Turkey. Co. is engaged in providing and refining crude oil, the importing and exporting of oil products, and establishing and operating refineries in Turkey and foreign countries. Also, Co. is establishing and operating factories and facilities in the petrochemical industry. Co. is engaged in purchasing, selling, importing, exporting, storing, marketing and distributing (wholesale, retail, foreign and domestic) all kinds of petroleum products, LPG and natural gas. Co. runs its business through the refineries in Izmit, Izmir, Kirikkale and Batman.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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