CS: European Refiners MARKET WEIGHT K. Fustier
Not out of the woods yet; Rating & TP changes
! In our report, following a change of primary analyst, we are updating our models and valuation for European refiners Neste,
Petroplus and Saras, leading us to downgrade our rating on Neste to Underperform and our rating on Saras to Neutral. We
discuss the outlook for the European refiners in 2010. In our view, the 'Dark Ages' are not over yet for the European
refiners, but trading opportunities do exist for the brave.
! Negative macro outlook: We do not believe the likely improvement in oil products demand will be sufficient to offset new
capacity coming onstream and the stock overhang, particularly in middle distillates. In our view, refinery closures in Europe
are not happening fast enough, prolonging the oversupply and maintaining pressure on margins.
! Stocks likely to remain range-bound... we think the refiners will trade in a volatile band at a 10-30% P/BV discount to the oil
sector for the next 18 months, similar to the last downcycle of 2000-03.
! ... but trading opportunities remain: the European refiners are close to the bottom of their trading range at 1.4x P/BV; so we
think we could see another short-lived spike in 1Q09. The FY09 results in February could provide positive catalysts, notably
for Petroplus and Saras, which should give further detail about cost-cutting targets.
! Estimates cut, Credit Suisse below consensus: We have made significant cuts (c.45% on average) to our 2010-11 EPS
forecasts. Our 10-11E estimates are 35% below Bloomberg consensus.
! Downgrading Neste to Underperform (PT Eu10.50): A major turnaround at Porvoo should slow the earnings recovery in
2010E, making Neste look expensive on near-term multiples (26% premium on 10E EV/EBITDA). We are sceptical about
the renewable diesel projects' value-creating potential.
! Downgrading Saras to Neutral (PT Eu2.10): We think 2010 earnings will be under pressure due to tight diesel margins and
light-heavy crude differentials. We look to the FY09 results in Feb-10 for clarity on Saras' strategic direction.
! Petroplus (Neutral, PT CHF19.50): We do not believe in a margin recovery story in 2010, but 2011 valuation appears more
reasonable. Near-term, the announcement of cost savings plan in February 2010 could be a catalyst. |
