Petrol Group: Dividends? Growth? Get them both (stays BUY)

In this valuation update, we reiterate our BUY recommendation on Petrol, with a new 12M price target (PT) of EUR 404/share, offering 19% upside. Petrol keeps posting solid results and pays a stable 5-6% dividend yield, while delivering growth across all segments. In the traditional business, fuel sales, Petrol is leveraging on expanding in the SEE economies, which still offer substantial growth potential. Moreover, the company keeps improving its high-margin merchandise EBITDA successfully, with plenty of room for expansion going forward. In the rapidly-growing energy segment, we expect it to deliver a CAGR of 15% in 2019-22E. The gradual transition from the traditional fossil fuel business to energy generation and mobility is already bearing fruit and, despite the recently-increased capex guidance, we expect it to deliver more EBITDA growth in the years to come. We forecast Petrol to continue generating a stable 6% dividend yield going forward, while reducing its net debt/EBITDA gradually, which we see reaching a low 2.0x by end-2019E. The deregulation of fuel prices in Slovenia, M&A, or using management’s long-term targets (which are higher than our more conservative estimates) in our model all offer additional upside for our valuation. On our 2019-21E forecasts, Petrol trades at P/Es of 6.5-7.0x and EV/EBITDAs of 5.4-5.8x, below its historical averages, which we see as unjustified.