Mediterranean Refiners: the morning after (Tupras stays BUY, HELLENIQ Energy and Motor Oil Hellas downgraded to HOLD)

For investors in refineries, 2022 was the best party ever, with limitless margins and one spectacular show after another. For analysts, the only problem was running out of superlatives. Now, the party is over, and we need to assess how these companies will deal with the hangover. Refining margins are down but, at USD14.9/bbl in the first quarter, not out yet. Energy costs have crashed, with TTF prices similar to oil prices on a boe basis, compared to USD 360/boe at their peak. The sanctions on Russia have supported diesel cracks, and driven costs lower for those like Tupras, which can continue buying feedstocks. Demand growth has stopped, but we expect jet fuel to remain a bright spot. CO2 costs are going to add to the cost structure in Greece, but Tupras is still at an advantage. Capital cost inflation and higher finance costs are a risk at all three companies, but Tupras has a net cash position currently. We maintain our BUY on Tupras, with an updated 12M price target (PT) of TRY 84.9 (from TRY 54.3), offering c.28% upside, while we have downgraded Motor Oil Hellas to HOLD, with an updated 12M PT of EUR 23.2, offering 7.4% upside. We have also downgraded HELLENIQ Energy to HOLD, with an updated 12M PT of EUR 7.80, offering 8.3% upside.