Turkish Oil and Gas: margin calls (Tupras stays BUY, Petkim downgraded to HOLD)
We have downgraded Petkim from a BUY to a HOLD, with an updated 12M price target (PT) of TRY 13.8 (from TRY 5.49), while we maintain our BUY recommendation on Tupras, with an updated 12M price target (PT) of TRY 380.3 (from TRY 191.9). Tupras is benefiting from high refining margins, and is reducing its debt levels and replenishing reserves, opening the way for a return of dividends in 2023E (from the 2022E earnings). Petkim, however, is seeing margins under pressure and is likely to pay the last instalment for the STAR refinery next year, postponing dividends for the time being. The Turkish economy has slowed dramatically and is suffering from the highest inflation in decades. This has proven challenging, especially with respect to FX management. Both the refined product and petrochemical markets are big net importers, however, so neither business relies on growth to boost its sales. Tupras is trading below its average multiples, while Petkim is close to or above historical levels.
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.
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