Petrol Group: Slovenia’s fuel deregulation is here (stays BUY)

In this update, we have revised our 12M price target (PT) for Petrol Group to EUR 429/share (from EUR 404). While we reflect the impact of the pandemic, we also model the recent, full deregulation of Slovenia’s fuel market. This still yields a BUY rating for the stock, with 27% upside. While the 2020E results are likely to be weak, reflecting the pandemic, and the company is yet to revise down its long-term strategy, we expect Petrol’s numbers to keep on improving in the coming quarters. We believe also that it should be able to maintain its dividend payout, supporting the share price. Petrol, a company hit profoundly by the last big crisis, has managed the current situation well, in our view, hoarding cash before the pandemic hit to allow for smooth operations, investments and a record dividend payment. Over the past week, the stock has rallied on the full deregulation of the Slovenian fuel market, but we believe there is still more upside to come. While we are now less bullish on absolute EBITDA growth in the coming years, we reiterate that Petrol could keep delivering a >5% dividend yield from next year’s profit, with its net debt/EBITDA below 2x and its FCF positive throughout our forecast period.